29Asset Allocation Case Studies for Each Behavioral Investor Type

The individual investor should act consistently as an investor and not as a speculator.

Ben Graham

Congratulations! If you've gotten this far in the book, you should have developed your practical understanding of behavioral investor types (BITs) along the way. In this chapter, we'll draw on all our discussions so far regarding specific behavioral biases and examine four fictional investment case studies.

Obviously, every investor is unique, and there is no absolute, definitive way to diagnose and counteract behavioral biases. As an investor or advisor, you should read this chapter while keeping in mind how you might handle similar situations. You should focus most on applying the methodological process outlined—diagnosis, effects assessment, response determination, and best practical allocation.

The following case studies involve four hypothetical investors, three involving individual investors, Mrs. Gina Fleming, Mr. Gary Rossington, and Mr. Tony Highsmith and one high net-worth family, the Masters Family. Each case will cover one of the four behavioral investor types. The point of view of the case involves a financial advisor. Using an advisory point of view can potentially help to think about your own situation more clearly.

These case studies were designed to answer the following key questions in determining an investor's modified portfolio:

  • What personal biases are driving the investor's behavior and ...

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