Behavioural Investing: A Practitioners Guide to Applying Behavioural Finance

Behavioural investing seeks to bridge the gap between psychology and investing. All too many investors are unaware of the mental pitfalls that await them. Even once we are aware of our biases, we must recognise that knowledge does not equal behaviour. The solution lies is designing and adopting an investment process that is at least partially robust to behavioural decision–making errors.
Behavioural Investing: A Practitioner’s Guide to Applying Behavioural Finance explores the biases we face, the way in which they show up in the investment process, and urges readers to adopt an empirically based sceptical approach to investing. This book is unique in combining insights from the field of applied psychology with a through understanding of the investment problem. The content is practitioner focused throughout and will be essential reading for any investment professional looking to improve their investing behaviour to maximise returns.
Key features include:
The only book to cover the applications of behavioural finance.An executive summary for every chapter with key points highlighted at the chapter start.Information on the key behavioural biases of professional investors, including The seven sins of fund management, Investment myth busting, and The Tao of investing.Practical examples showing how using a psychologically inspired model can improve on standard, common practice valuation tools.
Written by an internationally renowned expert in the field of behavioural finance.
 

Spis treści:
Preface.
Acknowledgments.
SECTION I: COMMON MISTAKES AND BASIC BIASES.
1 Emotion, Neuroscience and Investing: Investors as Dopamine Addicts..
Spock or McCoy?
The Primary of Emotion.
Emotions: Body or Brain?
Emotion: Good, Bad of Both?
Self–Control is Like a Muscle.
Hard 211;Wired for the Short Term.
Hard–Wired to Herd.
Plasticity as Salvation.
2 Part Man, Part Monkey.
The Biases We Face.
Bias #1: I Know Better, Because I Know More.
The Illusion of Knowledge: More Information Isn’t Better Information.
Professionals Worse than Chance!
The Illusion of Control.
Bias #2: Big —= Important.
Bias #3: Show Me What I Want to See.
Bias #4: Heads was Skill, Tails was Bad Luck.
Bias #5: I Knew it all Along.
Bias #6: The Irrelevant has Value as Input.
Bias #7: I Can Make a Judgement Based on What it Looks Like.
Bias #8: That’s Not the Way I Remember it.
Bias #9: If you Tell Me it Is So, It Must be True.
Bias #10: A Loss Isn’t a Loss Until I Take It.
Conclusions.
3 Take aWalk on the Wild Side.
Impact Bias.
Empathy Gaps.
Combating the Biases.
4 Brain Damage, Addicts and Pigeons.
5 What Do Secretaries’ Dustbins and the Da Vinci Code have in Common?
6 The Limits to Learning.
Self–Attribution Bias: Heads is Skill, Tails is Bad Luck.
Hindsight Bias: I Knew it All Along.
Skinner’s Pigeons.
Illusion of Control.
Feedback Distortion.
Conclusions.
SECTION II: THE PROFESSIONALS AND THE BIASES.
7 Behaving Badly.
The Test.
The Results.
Overoptimism.
Confirmatory Bias.
Representativeness.
The Cognitive Reflection Task (CRT).
Anchoring.
Framing.
Loss Aversion.
Keynes’s beauty contest.
Monty Hall Problem.
Conclusions.
SECTION III: THE SEVEN SINS OF FUND MANAGEMENT.
8 A Behavioural Critique.
Sin city.
Sin 1: Forecasting (Pride).
Sin 2: The Illusion of Knowledge (Gluttony).
Sin 3: Meeting Companies (Lust).
Sin 4: Thinking You Can Outsmart Everyone Else (Envy).
Sin 5: Short Time Horizons and Overtrading (Avarice).
Sin 6: Believing Everything You Read (Sloth).
Sin 7: Group–Based Decisions (Wrath) .
Alternative Approaches and Future Directions.
Sin 1: Forecasting (Pride).
9 The Folly of Forecasting: Ignore all Economists, Strategists, & Analysts.
Overconfidence as a Driver of Poor Forecasting.
Overconfidence and Experts.
Why Forecast When the Evidence Shows You Can’t?
Unskilled and Unaware.
Ego Defence Mechanism.
Why Use Forecasts?
Debasing.
10 What Value Analysts?
Sin 2: Illusion of Knowledge (Gluttony).
11 The Illusion of Knowledge or Is More Information Better Information?
Sin 3: Meeting Companies (Lust).
12 WhyWaste Your Time Listening to Company Management?
Managers are Just as Biased as the Rest of Us.
Confirmatory Bias and Biased Assimilation.
Obedience to Authority.
Truth or Lie?
Conclusions.
Sin 4: Thinking You Can Outsmart Everyone Else (Envy).
13 Who’s a Pretty Boy Then? Or Beauty Contests, Rationality and Greater Fools.
Background.
The Game.
The Solution.
The Results.
A Simple Model of Our Contest.
Comparison with Other Experiments.
Learning.
Conclusions.
Sin 5: Short Time Horizons and Overtrading (Avarice).
14 ADHD, Time Horizons and Underperformance.
Sin 6: Believing Everything You Read (Sloth).
15 The Story is The Thing (or The Allure of Growth).
16 Scepticism is Rare or (Descartes vs Spinoza).
Cartesian Systems.
Spinozan Systems.
Libraries.
A Testing Structure.
The Empirical Evidence.
Strategies to Counteract Naïve Belief.
Sin 7: Group Decisions (Wrath).
17 Are Two Heads Better Than One?
Beating the Biases.
SECTION IV: INVESTMENT PROCESS AS BEHAVIOURAL DEFENCE.
18 The Tao of Investing.
PART A: THE BEHAVIORAL INVESTOR.
19 Come Out of the Closet (or, Show Me the Alpha).
The Alpha.
The Evolution of the Mutual Fund Industry.
Characteristics of the Funds.
The Average and Aggregate Active Share.
Persistence and Performance.
Conclusions.
20 Strange Brew.
The Long Run.
Death of Indexing.
Getting the Long Run Right.
The Short Run.
Tactical Asset Allocation.
Equity Managers.
Break the Long–Only Constraint.
Add Breadth.
Not Just an Excuse for Hedge Funds.
Truly Alternative Investments.
Conclusions.
21 Contrarian or Conformist?
22 Painting by Numbers: An Ode to Quant.
Neurosis or Psychosis?
Brain Damage Detection.
University Admissions.
Criminal Recidivism.
Bordeaux Wine.
Purchasing Managers.
Meta–Analysis.
The Good News.
So Why Not Quant?
23 The Perfect Value Investor.
Trait I: High Concentration In Portfolios.
Trait II: They Don’t Need to Know Everything, and Don’t Get Caught in the Noise.
Trait III: A Willingness to Hold Cash.
Trait IV: Long Time Horizons.
Trait V: An Acceptance of Bad Years.
Trait VI: Prepared to Close Funds.
24 A Blast from the Past.
The Unheeded Words of Keynes and Graham.
On the Separation of Speculation and Investment.
On the Nature of Excess Volatility.
On the Folly of Forecasting.
On the Role of Governance and Agency Problems.
On the Importance (and Pain) of Being a Contrarian.
On the Flaws of Professional Investors.
On the Limits to Arbitrage.
On the Importance of the Long Time Horizon.
On the Difficulty of Defining Value.
On the Need to Understand Price Relative to Value.
On Why Behavioural Errors don’t Cancel Out.
On Diversification.
On the Current Juncture.
On the Margin of Safety.
On Beta.
On the Dangers of Overcomplicating.
On the Use of History.
25 Why Not Value? The Behavioural Stumbling Blocks.
Knowledge ≠ Behaviour.
Loss Aversion.
Delayed Gratification and Hard–Wiring for the Short Term.
Social Pain and the Herding Habit.
Poor