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Behavioral Finance and Investor Types: Managing Behavior to Make Better Investment Decisions

Book Description

Achieve investing success by understanding your behavior type

This groundbreaking book shows how to invest wisely by managing your behavior, and not just your money. Step by step, Michael Pompian (a leading authority in the practical application of Behavioral Finance concepts to wealth management) helps you plan a strategy targeted to your personality. The book includes a test for determining your investment type and offers strategies you can put into use when investing. It also includes a brief history of the stock market, and easy-to-comprehend information about stocks and investing to help you lay a solid foundation for your investment decisions.

Behavioral Finance and Investor Types is divided into two parts. Test Your Type, gives an overview of Behavioral Finance as well as the elements that come into play when figuring out BIT, like active or passive traits, risk tolerance, and biases. The book includes a quiz to help you discover what category you are in. Plan and Act, contains the traits common to your type; an analysis of the biases associated with your type; and strategies and solutions that compliment and capitalize on your BIT.

  • Offers a practical guide to an investing strategy that fits both your financial situation and your personality type

  • Includes a test for determining your tolerance for risk and other traits that will determine your investment type

  • Written by the Director of the Private Wealth Practice for Hammond Associates—an investment consulting firm serving institutional and private wealth clients

Behavioral Finance and Investor Types offers investors a better sense of what drives them and what puts on their breaks. By using the information found here, you'll quickly become savvy about the world of investing because you'll come to understand your place in it.

Table of Contents

  1. Cover
  2. Series
  3. Title Page
  4. Copyright
  5. Dedication
  6. Foreword
  7. Preface
    1. AN IMPERFECT SCIENCE
    2. WHY THIS BOOK?
    3. PLAN OF THE BOOK
    4. WHO SHOULD USE THIS BOOK?
    5. WHEN TO USE THIS BOOK
  8. Acknowledgments
  9. Part One: Introduction to Behavioral Finance
    1. Chapter 1: Why Reaching Financial Goals Is Difficult
      1. NONFINANCIAL EXAMPLES OF SELF-DEFEATING BEHAVIOR
      2. FINANCIAL EXAMPLES OF SELF-DEFEATING BEHAVIOR
      3. SUMMARY
    2. Chapter 2: Overview of Behavioral Finance
      1. BEHAVIORAL FINANCE: MICRO VERSUS MACRO
      2. STANDARD FINANCE VERSUS BEHAVIORAL FINANCE
      3. THE ROLE OF BEHAVIORAL FINANCE WITH PRIVATE CLIENTS
      4. PRACTICAL APPLICATIONS
    3. Chapter 3: The Building Blocks: Behavioral Biases
      1. COGNITIVE BIASES
      2. EMOTIONAL BIASES
      3. SUMMARY
  10. Part Two: Personality Theory
    1. Chapter 4: Introduction to Personality Theory
      1. HISTORY OF PERSONALITY THEORY
      2. FOUR MAIN PERSONALITY THEORIES
    2. Chapter 5: The History of Personality Testing
      1. TYPES OF PERSONALITY TESTS
      2. SUMMARY
    3. Chapter 6: The Behavioral Investor Type Framework
      1. REVIEWING THE ORIGINAL PROCESS
      2. THE BEHAVIORAL ALPHA PROCESS: A TOP-DOWN APPROACH
      3. UPDATES TO THE PREVIOUS MODEL
      4. UPDATED BIT THEORY AND APPLICATION
      5. SUMMARY
    4. Chapter 7: Behavioral Investor Type Diagnostic Testing
      1. STEP 1: BIT ORIENTATION QUIZ
      2. STEP 2: BIAS IDENTIFICATION QUIZ
      3. SUMMARY
  11. Part Three: Explanation of the Behavioral Investor Types
    1. Chapter 8: The Preserver
      1. UPSIDE/DOWNSIDE ANALYSIS
      2. BIAS ANALYSIS
      3. OTHER BIASES
      4. ADVICE FOR PRESERVERS
    2. Chapter 9: The Follower
      1. UPSIDE/DOWNSIDE ANALYSIS
      2. BIAS ANALYSIS
      3. OTHER BIASES
      4. ADVICE FOR FOLLOWERS
    3. Chapter 10: The Independent
      1. UPSIDE/DOWNSIDE ANALYSIS
      2. BIAS ANALYSIS
      3. ADVICE FOR INDEPENDENTS
    4. Chapter 11: Chapter The Accumulator
      1. UPSIDE/DOWNSIDE ANALYSIS
      2. BIAS ANALYSIS
      3. OTHER BIASES
      4. ADVICE FOR ACCUMULATORS
  12. Part Four: Plan and Act
    1. Chapter 12: Capital Markets and Asset Classes
      1. OVERVIEW OF ASSET CLASSES
      2. PUBLICLY TRADED EQUITY INVESTMENTS (STOCKS)
      3. FIXED INCOME INVESTMENTS (BONDS)
      4. HEDGE FUNDS
      5. REAL ASSETS
      6. SIMPLE PORTFOLIO CONSTRUCTION
      7. SUMMARY
    2. Chapter 13: Chapter What Is Asset Allocation?
      1. THE IMPORTANCE OF ASSUMPTIONS
      2. THE IMPORTANCE OF STRATEGIC ASSET ALLOCATION
      3. CONSIDERATIONS FOR INDIVIDUAL INVESTORS
      4. WHY ASSET ALLOCATION IS SO IMPORTANT
      5. SUMMARY
    3. Chapter 14: Financial Planning: A Crucial Step
      1. WHAT IS FINANCIAL PLANNING?
      2. WORKING WITH A FINANCIAL PLANNER
      3. WHAT IS A CERTIFIED FINANCIAL PLANNER?
      4. WHO CAN PROVIDE FINANCIAL PLANNING SERVICES?
      5. SUMMARY
    4. Chapter 15: Investment Advice for Each Behavioral Investor Type
      1. FOUNDATIONS OF BEST PRACTICAL ALLOCATION
      2. GUIDELINES FOR DETERMINING WHEN TO MODERATE AND WHEN TO ADAPT
      3. BEST PRACTICAL ALLOCATION FOR PRESERVERS
      4. BEST PRACTICAL ALLOCATION FOR FOLLOWERS
      5. BEST PRACTICAL ALLOCATION FOR INDEPENDENTS
      6. BEST PRACTICAL ALLOCATION FOR ACCUMULATORS
      7. SUMMARY
      8. Note
  13. Index