Behavioral Finance and Your Portfolio

Behavioral Finance and Your Portfolio

by Michael M. Pompian
Released May 2021
Publisher(s): Wiley
ISBN: 9781119801610

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Book description

Become a more strategic and successful investor by identifying the biases impacting your decision making.

In Behavioral Finance and Your Portfolio, acclaimed investment advisor and author Michael M. Pompian delivers an insightful and thorough guide to countering the negative effect of cognitive and behavioral biases on your financial decisions. You’ll learn about the “Big Five” behavioral biases and how they’re reducing your returns and leading to unwanted and unnecessary costs in your portfolio.

Designed for investors who are serious about maximizing their gains, in this book you’ll discover how to:

● Take control of your decision-making—even when challenging markets push greed and fear to intolerable levels

● Reflect on how to make investment decisions using data-backed and substantiated information instead of emotion and bias

● Counter deep-seated biases like loss aversion, hindsight and overconfidence with self-awareness and hard facts

● Identify your personal investment psychology profile, which you can use  to inform your future financial decision making

Behavioral Finance and Your Portfolio was created for individual investors, but will also earn a place in the libraries of financial advisors, planners and portfolio managers who are determined to counteract the less principled and data-driven aspects of their decision making.

Table of contents

  1. Cover
  2. Title Page
  3. Copyright
  4. Dedication
  5. Preface
    1. A Challenging Environment
    2. Why This Book?
    3. Who Should Use This Book?
    4. When to Use This Book
    5. Plan of the Book
  6. Acknowledgments
  7. About the Author
  8. PART I: INTRODUCTION TO BEHAVIORAL FINANCE
    1. 1 What Is Behavioral Finance and Why Does It Matter?
      1. Why Behavioral Finance Matters
      2. Behavioral Finance: The Big Picture
      3. Standard Finance versus Behavioral Finance
      4. Notes
    2. 2 Introduction to Behavioral Biases
      1. Introduction
      2. Behavioral Biases Defined
      3. Why Understanding and Identifying Behavioral Biases Is Crucial
      4. Categorization of Behavioral Biases
      5. Differences between Cognitive and Emotional Biases
      6. Difference among Cognitive Biases
      7. Emotional Biases
      8. A Final Word on Biases
  9. PART II: BELIEF PERSEVERANCE BIASES DEFINED AND ILLUSTRATED
    1. 3 Belief Perseverance Bias #1: Cognitive Dissonance Bias
      1. Bias Description
      2. Am I Subject to Cognitive Dissonance Bias?
      3. Investment Advice
      4. Note
    2. 4 Belief Perseverance Bias #2: Conservatism Bias
      1. Bias Description
      2. Am I Subject to Conservatism Bias?
      3. Investment Advice
      4. Notes
    3. 5 Belief Perseverance Bias #3: Confirmation Bias
      1. Bias Description
      2. Am I Subject to Confirmation Bias?
      3. Investment Advice
    4. 6 Belief Perseverance Bias #4: Representativeness Bias
      1. Bias Description
      2. Examples of Representativeness Bias
      3. Am I Subject to Representativeness Bias?
      4. Investment Advice
      5. Note
    5. 7 Belief Perseverance Bias #5: Illusion-of-Control Bias
      1. Bias Description
      2. Example of Illusion of Control Bias
      3. Am I Subject to Illusion of Control Bias?
      4. Investment Advice
      5. Notes
    6. 8 Belief Perseverance Bias #6: Hindsight Bias
      1. Bias Description
      2. Example of Hindsight Bias
      3. Am I Subject to Hindsight Bias?
      4. Investment Advice
  10. PART III: INFORMATION PROCESSING BIASES DEFINED AND ILLUSTRATED
    1. 9 Information Processing Bias #1: Mental Accounting Bias
      1. Bias Description
      2. Practical Application
      3. Am I Subject to Mental Accounting Bias?
      4. Investment Advice
      5. Notes
    2. 10 Information Processing Bias #2: Anchoring Bias
      1. Bias Description
      2. Example of Anchoring and Bias
      3. Am I Subject to Anchoring Bias?
      4. Investment Advice
      5. Bonus Discussion: Investment Strategies That Leverage Anchoring Bias
    3. 11 Information Processing Bias #3: Framing Bias
      1. Bias Description
      2. Example of Framing Bias
      3. Am I Subject to Framing Bias?
      4. Investment Advice
    4. 12 Information Processing Bias #4: Availability Bias
      1. Bias Description
      2. Example of Availability Bias
      3. Am I Subject to Availability Bias?
      4. Investment Advice
      5. Notes
    5. 13 Information Processing Bias #5: Self-Attribution Bias
      1. Bias Description
      2. Example of Self-Attribution Bias
      3. Am I Subject to Self-Attribution Bias?
      4. Investment Advice
      5. Note
    6. 14 Information Processing Bias #6: Outcome Bias
      1. Bias Description
      2. Am I Subject to Recency Bias?
      3. Note
    7. 15 Information Processing Bias #7: Recency Bias
      1. Bias Description
      2. Example of Recency Bias
      3. Am I Subject to Recency Bias?
      4. Investment Advice
  11. PART IV: EMOTIONAL BIASES DEFINED AND ILLUSTRATED
    1. 16 Emotional Bias #1: Loss Aversion Bias
      1. Bias Description
      2. Example of Loss Aversion Bias
      3. Am I Subject to Loss Aversion Bias?
      4. Investment Advice
      5. Note
    2. 17 Emotional Bias #2: Overconfidence Bias
      1. Bias Description
      2. Examples of Overconfidence Bias
      3. Am I Subject to Overconfidence Bias?
      4. Investment Advice
      5. A Final Word on Overconfidence
      6. Notes
    3. 18 Emotional Bias #3: Self-Control Bias
      1. Bias Description
      2. Example of Self-Control Bias
      3. Am I Subject to Self-Control Bias?
      4. Investment Advice
      5. Note
    4. 19 Emotional Bias #4: Status Quo Bias
      1. Bias Description
      2. Example of Status Quo Bias
      3. Am I Subject to Status Quo Bias?
      4. Investment Advice
      5. Note
    5. 20 Emotional Bias #5: Endowment Bias
      1. Bias Description
      2. Example of Endowment Bias
      3. Am I Subject to Endowment Bias?
      4. Investment Advice
      5. Note
    6. 21 Emotional Bias #6: Regret Aversion Bias
      1. Bias Description
      2. Example of Regret Bias
      3. Am I Subject to Regret Bias?
      4. Advice
    7. 22 Emotional Bias #7: Affinity Bias
      1. Bias Description
      2. Example of Affinity Bias
      3. Am I Subject to Affinity Bias?
      4. Investment Advice
      5. Note
  12. PART V: BEHAVIORAL INVESTOR TYPES
    1. 23 Staying on Target to Reach Financial Goals Is Hard
      1. Non-Financial Examples of Self-Defeating Behavior
      2. Financial Examples of Self-Defeating Behavior
      3. Notes
    2. 24 Introduction to Behavioral Investor Types
      1. Introduction
      2. What Is My Behavioral Investor Type?
      3. Step 1: BIT Orientation Quiz
      4. Step 2: Bias Identification Quiz
      5. Step 3: Advice for Each BIT
      6. Summary
    3. 25 Preserver Behavioral Investor Type
      1. Upside/Downside Analysis
      2. Bias Analysis of Preservers
      3. Advice for Preservers
    4. 26 Follower Behavioral Investor Type
      1. Upside/Downside Analysis
      2. Bias Analysis of Followers
      3. Other Important Follower Biases: Hindsight, Cognitive Dissonance, and Regret
      4. Advice for Followers
    5. 27 Independent Behavioral Investor Type
      1. Upside/Downside Analysis
      2. Bias Analysis of Independents
      3. Self-Attribution
      4. Conservatism Bias
      5. Representative Bias
      6. Advice for Independents
    6. 28 Accumulator Behavioral Investor Type
      1. Upside/Downside Analysis
      2. Accumulator Bias Analysis
      3. Advice for Accumulators
    7. 29 Asset Allocation Case Studies for Each Behavioral Investor Type
  13. PART VI: BEHAVIORAL ASPECTS OF PORTFOLIO IMPLEMENTATION
    1. 30 Behavioral Finance Aspects of the Active versus Passive Debate
      1. The Logic of Passive Management
      2. The Potential Benefits of Active Management
      3. Advice: Use the Best Practical Allocation for Your Portfolio
      4. Notes
    2. 31 Behaviorally Aware Portfolio Construction
      1. Introduction
      2. Goals-Based Investing
      3. Consolidating Accounts into a Portfolio View
      4. Portfolio Approach
    3. 32 Behavioral Finance and Market Corrections
      1. The Most Recent Panic
      2. Note
  14. Index
  15. End User License Agreement

Product information

  • Title: Behavioral Finance and Your Portfolio
  • Author(s): Michael M. Pompian
  • Release date: May 2021
  • Publisher(s): Wiley
  • ISBN: 9781119801610