Investing Psychology, + Website

TIM RICHARDS is the creator of the Psy-Fi Blog (www.psyfitec.com), a unique website dedicated to analyzing, explaining, and integrating the vast body of research on the impact of psychology in finance. As a uniquely focused resource for behavioral investing, the website attracts as many as 25,000 unique visits a month and is regularly featured in the largest information aggregators and websites in the financial industry.

• Preface xiiiCHAPTER 1 Sensory Finance 1Beating the Bias Blind Spot 1Illusory Pattern Recognition 4Superstitious Pigeons—and Investors 6The Super Bowl Effect: If It Looks Too Good to Be True, It Is 9Your Financial Horoscope: Forecasting and the Barnum Effect 10Uncertainty: The Unknown Unknowns 12Illusion of Control 13Stocks Aren’t Snakes 15Herding 16Availability 19Assuming the Serial Position 21Hot Hands 23Financial Memory Syndrome 25Attention! 27The Problem with Linda 29Representation 31The Seven Key Takeaways 33Notes 34CHAPTER 2 Self-Image and Self-Worth 37The Introspection Illusion 37Blind Spot Bias, Revisited 39Rose-Colored Investing 40Past and Present Failures 41Depressed but Wealthy 43Disposed to Lose Money 44Loss Aversion 45Anchored 46Two Strangers 48Hindsight’s Not So Wonderful 50Deferral to Authority 51Emotion 52Black Swans 54Dirty Money, Mental Accounting 55A Faint Whisper of Emotion 56Psychologically Numbed 57Martha Stewart’s Biases 58Retrospective 60Annual Returns 60Nudged 61Mindfulness 62The Seven Key Takeaways 65Notes 66CHAPTER 3 Situational Finance 69Disposition vs. Situation 69Beauty Is in the Eye of the Investor 70Angels or Demons? 71Merely Familiar 73Lemming Time 74Story Time 76Wise Crowds? 78Adaptive Markets 79George Soros’s Refl exivity 81Grow Old Quickly 82Speaking Ill 83The Power of Persuasion 85SAD Investors 86Sell in May . . . 87The Mystery of the Vanishing Anomalies 89Tweet and Invest 90Fire! 92The Rise of the Machines 93The Seven Key Takeaways 94Notes 95CHAPTER 4 Social Finance 99Conform—or Die 99Groupthink 100Motivated Reasoning 101Polarized 103A Personal Mission Statement: SocialIdentity and Beyond 104Gaming the System 106You’ve Been Framed 108Behavioral Portfolios 110Dividend Dilemmas 112The Language of Lucre 113Embedded Investing 114Financial Theory of Mind 116Trust Me, Reciprocally . . . 118Akerlof’s Lemons 119The Peacock’s Tail 122Facebooked 123Be Kind to an Old Person 124The Seven Key Takeaways 126Notes 127CHAPTER 5 Professional Bias 131Mutual Fund Madness 131Is Passive Persuasive? 133Losing to the Dark Side 134Forecasting—The Butterfl y Effect 136Forecaster Bias 138Feminine Finance 140Trading on a High 141Marriage and Money 142Muddled Modelers 144CEO Pay—Because They’re Worth It? 145Corporate Madness 146Buyback Brouhaha 148Oh No, IPO 149Your 6 Percent Self-Infl icted Trading Tax 150Expert Opinion? 151Avoid the Sharpshooters 153The Seven Key Takeaways 154Notes 154CHAPTER 6 Debiasing 159Numbers, Numbers, Numbers 159Losing Momentum 160Mean Reversion 162Short Shift 163Diworsification 165Disconfirm, Disconfi rm 167Reverse Polarization 168Expected Value 170Investing in the Rearview Mirror 172Living with Uncertainty 174Sunk by the Titanic Effect 175Changing Your Mind 177Love Your Kids, Not Your Stocks 178Cognitive Repairs 180Satisficing 181The Seven Key Takeaways 182Notes 183CHAPTER 7 Good Enough Investing 187#1: The Rule of Seven 187#2: Homo Sapiens, Tool Maker 188#3: Meta-Methods 189#4: Be Skeptical 189#5: Don’t Trust Yourself 190#6: Self-Control Is Key 191#7: Get Feedback 191A Behavioral Investing Framework 192Step #1: Making It Personal 193Step #2: Build an Investing Checklist 195Step #3: Write It Down 196Step #4: Diarize Reviews 197Step #5: Get Feedback 198Step #6: Do Autopsies 199Step #7: Update Adaptively 200The Worst Offenders 201Tools 203The Mechanics of Investing 204The Seven Key Takeaways 206Notes 207CHAPTER 8 A Few Myths More 209Myth 1: Money Makes Us Happy 210Myth 2: Everyone Can Be a Good Investor 211Myth 3: Numbers Don’t Matter 212Myth 4: Financial Education Can Make You a Good Investor 213Myth 5: I Won’t Panic 214Myth 6: Debt Doesn’t Matter 215Myth 7: I Can Get 7 Percent a Year from Markets 216Myth 8: Infl ation Doesn’t Matter 217Myth 9: Everyone Has Some Good Investing Ideas, Sometime 217Myth 10: I Don’t Need to Track My Results 218The Seven Key Takeaways 219Notes 219CHAPTER 9 The Final Roundup 221Notes 224About the Companion Website 227About the Author 229Index 231