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MarketPsych: How to Manage Fear and Build Your Investor Identity

Book Description

An investor's guide to understanding the most elusive (yet most important) aspect of successful investing - yourself.

Why is it that the investing performance of so many smart people reliably and predictably falls short? The answer is not that they know too little about the markets. In fact, they know too little about themselves.

Combining the latest findings from the academic fields of behavioral finance and experimental psychology with the down-and-dirty real-world wisdom of successful investors, Drs. Richard Peterson and Frank Murtha guide both new and experienced investors through the psychological learning process necessary to achieve their financial goals.

In an easy and entertaining style that masks the book's scientific rigor, the authors make complex scientific insights readily understandable and actionable, shattering a number of investing myths along the way. You will gain understanding of your true investing motivations, learn to avoid the unseen forces that subvert your performance, and build your investor identity - the foundation for long-lasting investing success.

Replete with humorous games, insightful self-assessments, entertaining exercises, and concrete planning tools, this book goes beyond mere education. MarketPsych: How to Manage Fear and Build Your Investor Identity functions as a psychological outfitter for your unique investing journey, providing the tools, training and equipment to help you navigate the right paths, stay on them, and see your journey through to success.

Table of Contents

  1. Copyright
  2. Preface
  3. Acknowledgments
  4. 1. Your Investor Identity: And Why You Need One
    1. 1.1. Psychology and Finance: Failure to Communicate
    2. 1.2. Beginning the Journey
    3. 1.3. Risky Business
    4. 1.4. Resisting Your "Idiot Friend"
    5. 1.5. Finding Your Investor Identity
  5. 2. Investor Identity Fundamentals: Frames, Motivations, and Goals
    1. 2.1. The Detail-Orientation Test: A Case Study in Frames
    2. 2.2. Frames: Your Tinted Glasses
      1. 2.2.1. Frame 1: Money-Focused vs. Life-Focused (a.k.a. Quantity vs. Quality or "Your Money or Your Life")
      2. 2.2.2. Frame 2: Market-Orientation vs. Self-Orientation (Outcome vs. Process)
      3. 2.2.3. Frame 3: Sporadic vs. Consistent Investing Frames (Fair Weather vs. All Weather)
        1. 2.2.3.1. Strategies for Reframing.
      4. 2.2.4. Frames Summary
    3. 2.3. Motivations: The Iceberg Theory
      1. 2.3.1. Maslow's Hierarchy of Needs
      2. 2.3.2. Gary Gets Professional Help: A Case Study in Motivation
      3. 2.3.3. Hidden Agenda: The Emotional Returns on Investment (EROI)
      4. 2.3.4. What is Your Motivation?
    4. 2.4. Goals: Create a Slide Show® to Guide Your Investing
      1. 2.4.1. Step 1: Identifying Slide Show Topics
      2. 2.4.2. Step 2: Make it Vivid
      3. 2.4.3. Step 3: Capture the Feeling
      4. 2.4.4. Step 4: Recording
      5. 2.4.5. Step 5: A Matching Plan
    5. 2.5. The Five Questions to Ask Before Investing
    6. 2.6. Conclusion
  6. 3. Your Investor Personality: Your Character and Style
    1. 3.1. What Makes a Great Investor?
    2. 3.2. The "Big Five"
      1. 3.2.1. Emotional Stability vs. Emotional Sensitivity
      2. 3.2.2. Extraversion vs. Introversion
      3. 3.2.3. Openness to New Experiences vs. Traditionalism
      4. 3.2.4. Agreeableness vs. Self-interest
      5. 3.2.5. Conscientiousness vs. Impulsiveness
    3. 3.3. The Character of Performance
    4. 3.4. Working with Your Traits
    5. 3.5. The Genetics of Successful Investing
    6. 3.6. Using What You've Learned
    7. 3.7. Conclusion
  7. 4. Your Investor Emotions: The Hidden Drivers of Behavior
    1. 4.1. Restless Ed, the Redemption-Seeking Channel Trader
    2. 4.2. Financial Wounds and Emotional Wounds
    3. 4.3. Understanding the Science behind Emotion
    4. 4.4. Using Your Emotions for Good: Damasio and the Iowa Gambling Task
    5. 4.5. Stirring the Unconscious
      1. 4.5.1. The Difference between Positive and Negative Feelings
      2. 4.5.2. Regret
      3. 4.5.3. Sadness and Disgust
      4. 4.5.4. Fear and Anger
      5. 4.5.5. Pride
      6. 4.5.6. Greed
      7. 4.5.7. Summary
    6. 4.6. Being Triggered
    7. 4.7. Name that Emotion
    8. 4.8. Emotional Defenses
    9. 4.9. Ed's Epitaph
    10. 4.10. Conclusion
  8. 5. Your Investor Values: What's Most Important to You?
    1. 5.1. Enjoying the Process
    2. 5.2. The Financial Values Questionnaire
    3. 5.3. Values Leakage
    4. 5.4. The Impact of Financial Traumas
    5. 5.5. All in the Family
    6. 5.6. George Kinder and the Three Questions
    7. 5.7. Digging into Money Taboos
    8. 5.8. Conclusion
  9. 6. Your Investor Blind Spots: Identifying (and Avoiding) Mental Traps
    1. 6.1. Trap #1: Win/Lose Mentality
      1. 6.1.1. Avoiding Trap #1
    2. 6.2. Trap #2: Down with the Ship Syndrome
      1. 6.2.1. Avoiding Trap #2
    3. 6.3. Trap #3: Anchoring
      1. 6.3.1. Avoiding Trap #3
    4. 6.4. Trap #4: Mean Reversion Bias
      1. 6.4.1. Avoiding Trap #4
    5. 6.5. Trap #5: Endowment Effect
      1. 6.5.1. Avoiding Trap #5
    6. 6.6. Trap #6: Media Hype Effect
      1. 6.6.1. Avoiding Trap #6
    7. 6.7. Trap #7: Short-Termism
      1. 6.7.1. Avoiding Trap #7
    8. 6.8. Trap #8: Overconfidence
      1. 6.8.1. Avoiding Trap #8
    9. 6.9. Trap #9: Herding
      1. 6.9.1. Avoiding Trap #9
    10. 6.10. Trap #10: Hindsight Bias
      1. 6.10.1. Avoiding Trap #10
    11. 6.11. Market Psych's Investing Traps Worksheet
      1. 6.11.1. Trap #1: Win/Lose Mentality
      2. 6.11.2. Trap #2: Down with the Ship Syndrome
      3. 6.11.3. Trap #3: Anchoring
      4. 6.11.4. Trap #4: Mean Reversion Bias
      5. 6.11.5. Trap #5: Endowment Effect
      6. 6.11.6. Trap #6: Media Hype Effect
      7. 6.11.7. Trap #7 Short-Termism
      8. 6.11.8. Trap #8: Overconfidence
      9. 6.11.9. Trap #9: Herding
      10. 6.11.10. Trap #10: Hindsight Bias
      11. 6.11.11. What's Your Score?
      12. 6.11.12. Dangerous Profiles
        1. 6.11.12.1. Profile: The Wicked Gardener.
        2. 6.11.12.2. Profile: Corporal Clinger.
        3. 6.11.12.3. Profile: Mr. Magoo.
        4. 6.11.12.4. Profile: The Roulette Player.
        5. 6.11.12.5. Profile: Maxwell Smart.
    12. 6.12. Conclusion
  10. 7. Your Investor Stress: Smoothing Out the Ups and Downs
    1. 7.1. Stress: An Overview
    2. 7.2. Physical Effects of Stress
    3. 7.3. Choking
    4. 7.4. Managing Short-Term Investment Stress
      1. 7.4.1. Simple Stress Reduction Techniques
      2. 7.4.2. Meditation, Yoga, and Lifestyle
      3. 7.4.3. Tend Your Garden Regularly
    5. 7.5. Cognitive-Behavioral Techniques for Long-Term Stress Management
      1. 7.5.1. Getting Out of a Slump
      2. 7.5.2. Cultivating Resilience
      3. 7.5.3. Taking Care of Yourself
    6. 7.6. Financial Stress Management Plan (F-SMaP™)
      1. 7.6.1. Fear vs. Panic
      2. 7.6.2. Step 1: Acknowledge the Bad Times—Past, Present, and Future
      3. 7.6.3. Step 2: Maintain a Rational Anchor
      4. 7.6.4. Step 3: Determine Your Personal Stress Reactions
      5. 7.6.5. Step 4: Engage In Healthy Coping Mechanisms (i.e., "Hit the Pillow")
      6. 7.6.6. Step 5: Do Something!
      7. 7.6.7. Step 6: Commit to the Plan
      8. 7.6.8. Creating a Crisis Plan
    7. 7.7. Conclusion
  11. 8. Being Your Best Self
    1. 8.1. Psychological Foundations
      1. 8.1.1. The Value of Mono-Tasking
      2. 8.1.2. Self-Affirmations Work (As Long As You Don't Need Them)
      3. 8.1.3. The Inner Dialogue
      4. 8.1.4. Visualization
      5. 8.1.5. Identifying Your Best Possible Self
    2. 8.2. Brain Boosting
      1. 8.2.1. Exercise Regularly
      2. 8.2.2. Sleep in the Dark
      3. 8.2.3. Medications
      4. 8.2.4. Diet and Nutrition
        1. 8.2.4.1. Caffeine.
    3. 8.3. The Economics of Behavior Change
    4. 8.4. Learning Optimism
    5. 8.5. Committing to Your Peak Performance Routine
      1. 8.5.1. Don't do it Alone
      2. 8.5.2. Preparing to Invest
      3. 8.5.3. Changing Your Life
        1. 8.5.3.1. Brain Boosters
        2. 8.5.3.2. Flexing Your Mind Muscles.
    6. 8.6. Setting Up Goals
    7. 8.7. Conclusion
  12. A. Summary of Meditation Techniques
    1. A.1. Introductory Meditation (For Rapid "Letting Go")
    2. A.2. Mindfulness Meditation (Vipassana)
    3. A.3. Mantra-Based Meditation
    4. A.4. Thich Nhat Hanh
      1. A.4.1. Loving Kindness (Metta)
      2. A.4.2. Cultivating Compassion (Tonglen)
  13. B. Gratitude List
  14. Notes
    1. B.1. Chapter 1 Your Investor Identity: And Why You Need One
    2. B.2. Chapter 2 Investor Identity Fundamentals: Frames, Motivations and Goals
    3. B.3. Chapter 3 Your Investor Personality: Your Character and Style
    4. B.4. Chapter 4 Your Investor Emotions: The Hidden Drivers of Behavior
    5. B.5. Chapter 5 Your Investor Values: What's Most Important to You?
    6. B.6. Chapter 6 Your Investor Blind Spots: Identifying (and Avoiding) Mental Traps
    7. B.7. Chapter 7 Your Investor Stress: Smoothing Out the Ups and Downs
    8. B.8. Chapter 8 Being Your Best Self
  15. About the Authors