Finance for Normal People: How Investors and Markets Behave

by Meir Statman

Finance for Normal People teaches behavioral finance to people like you and me - normal people, neither rational nor irrational. We are consumers, savers, investors, and managers - corporate managers, money managers, financial advisers, and all other financial professionals.The book guides us to know our wants-including hope for riches, protection from poverty, caring for family, sincere social responsibility and high social status. It teaches financial facts and human behavior, including making cognitive and emotional shortcuts and avoiding cognitive and emotional errors such as overconfidence, hindsight, exaggerated fear, and unrealistic hope. And it guides us to banish ignorance, gain knowledge, and increase the ratio of smart to foolish behavior on our way to what we want.These lessons of behavioral finance draw on what we know about us-normal people-including our wants, cognition, and emotions. And they draw on the roles of these factors in saving and spending, portfolio construction, returns we can expect from our investments, and whether we can hope to beat the market.Meir Statman, a founder of behavioral finance, draws on his extensive research and the research of many others to build a unified structure of behavioral finance. Its foundation blocks include normal behavior, behavioral portfolio theory, behavioral life-cycle theory, behavioral asset pricing theory, and behavioral market efficiency.

Genres: Finance, Nonfiction, Business, Education, Economics

481 pages, Kindle Edition

Published April 3, 2017

About the author

Meir Statman is the Glenn Klimek Professor of Finance at the Leavey School of Business, Santa Clara University and Visiting Professor at Tilburg University in the Netherlands. His research focuses on behavioral finance. He attempts to understand how investors and managers make financial decisions and how these decisions are reflected in financial markets.

The questions he addresses include: What are the cognitive errors and emotions that influence investors? What are investor aspirations? How can financial advisers and plan sponsors help investors? What is the nature of risk and regret? How do investors form portfolios? How successful are tactical asset allocation and strategic asset allocation? What determines stock returns? What are the effects of sentiment? How successful are socially responsible investors?

Meir’s research has been published in the Journal of Finance, the Journal of Financial Economics, the Review of Financial Studies, the Journal of Financial and Quantitative Analysis, the Financial Analysts Journal, the Journal of Portfolio Management, and many other journals. The research has been supported by the National Science Foundation, the Research Foundation of the CFA Institute, and the Investment Management Consultants Association (IMCA). Meir is a member of the Editorial Board of the Financial Analysts Journal, the Advisory Board of the Journal of Portfolio Management, the Journal of Wealth Management and the Journal of Investment Consulting, an Associate Editor of the Journal of Financial Research, the Journal of Behavioral Finance, and the Journal of Investment Management and a recipient of a Batterymarch Fellowship, a William F. Sharpe Best Paper Award, a Bernstein Fabozzi/Jacobs Levy Outstanding Article Award, a Davis Ethics Award, a Moskowitz Prize for best paper on socially responsible investing, two Baker IMCA Awards, and three Graham and Dodd Scroll Awards. Meir consults with many investment companies and presents his work to academics and professionals in many forums in the U.S. and abroad.

Meir received his Ph.D. from Columbia University and his B.A. and M.B.A. from the Hebrew University of Jerusalem.

Reviews

[Steve · Rating 3 out of 5]

Lots of good information and stats in this book. However, the finance may be for normal people, but the book was not written for normal people. I had already learned a lot of the stuff that this book contained, so I was able to follow. But if it had been the first time seeing it, I would have been a little lost and would have to reread many parts.

[Michelle M Victora · Rating 4 out of 5]

Thought this book read almost like a textbook but in a very readable way. Definitely helped me remove myself a bit from my emotions and diagnose how I think about money. For example, I definitely keep money in tiers of risk based on how much I want to spend in the short-term vs. the long-term (however, I think that makes tons of sense especially if I'm ever considering homeownership??)

I think (again) since I'm not day trading or anything, I'm not going to be changing my ways at all (my investment accounts are set to automatically reinvest dividends so I'm not getting caught up in those head games). Some of the book seemed comically removed, too (no duh that people who are low-income are very unwilling to save their money (they have no money to save!!)).

But the book still helped me reflect on how I divide up and spend my money, and how I might be influenced by those around me. So I enjoyed it, was a good read.

[Kursad Albayraktaroglu · Rating 4 out of 5]

Definitely a good book, but it suffers from a somewhat misleading name: what this book is is a very good overview of behavioral finance and a thorough compendium of related studies. What it is not is a finance book for "normal people", as the title seems to imply. I knew what I was going to read before I purchased the book, but be aware of the real subject of the book.

Portions of the text certainly make for somewhat dry reading, with only the rarest bit of humor injected by Prof. Statman. If you are already a student of behavioral finance and read the other books on the subject, there is very little here that is really new. However the detailed bibliography at the end is very thorough and helpful, and the book is worth reading even only for this section.

[João]

Not really a book on teaching normal people about finance, but teaching the tenets of behavioral finance to finance-learned investors/people. Reads like a review paper, and a terse one at that. I skipped a lot of chapters and sections because of this, but there's still some nuggets of knowledge that are useful.

Shiller's new Coursera course seems more inline with what I was looking for - https://www.coursera.org/learn/financ...

Also, low-cost index funds are still the way to go.

[Sanford Chee]

Human mind = meaning making machine
Jump to conclusions
Expressive & emotional benefits vs utilitarian benefits
How to increase ratio of smart vs foolish; knowledgeable vs ignorant?
Pride & regret shortcuts & errors
Risk = P(shortfall fr wants); risk is the price we pay for a chance to satisfy our wants
Wealth is only a way station to well being. Good financial advisers = well being advisers
How to correct standard cognition errors? Awareness & checklists

[Cameron Taylor · Rating 3 out of 5]

6/10 very overly complicated uses maths to explain a lot of human behaviour. Main idea is how people see utilitarian, expressive and emotional benefits of certain assets and investments based on their preferences, emotions and life circumstances

[Jack Hayes · Rating 5 out of 5]

Excellent overview of finance and investing for we normal folk including some nice examples of fallacies that are widespread (e.g., buying high divedend stocks instead of paying yourself with lower tax capital gains on stocks you own).

Well written and clear.

[Manbir Kaur · Rating 3 out of 5]

It's easy to read but becomes quite repetitive at times. Overall interesting to grasp the basic concepts of behavioural finance.

[Eric · Rating 1 out of 5]

Too much information, too long.

[Jim Woolwine · Rating 3 out of 5]

Difficult read.

[Chris Austin · Rating 3 out of 5]

Hard to get through.

[Linda Leitz · Rating 5 out of 5]

An excellent read in both behavioral finance and many of the technical academic theories that formed traditional economics.