จิตวิทยาการลงทุน : The Psychology of Investing

by John R. Nofsinger, พิริยะ พาณิชย์ชะวงศ์ (Translator)

While traditional finance focuses on the tools used to optimize return and minimize risk, this book shows how psychology can explain our decisions more than financial theory. Analyzing how investors behave in the real world, this is the first book of its kind to delve into the ways biases influence investment behavior, and how overcoming these biases can increase financial success.

Now in its seventh edition, this classic text features:



An easy-to-understand structure, illustrating psychological biases as everyday behavior; analyzing their effect on investment decisions; and concluding with academic studies that show real-life investors making choices that hurt their wealth

New content on fintech and cryptocurrencies, the role of social media in investing, generational biases, and the COVID-19 pandemic

Experiential examples, chapter summaries, and end-of-chapter discussion questions to help readers test their practical understanding

Online supplements comprising PowerPoint slides for both students and lecturers Fully updated with the latest research in the field, The Psychology of Investing will prove fascinating and educational for advanced students in behavioral finance, investment and portfolio management classes, as well as investors and financial planners.

Genres: Finance, Psychology, Business, Economics, Money, Nonfiction, Personal Finance

240 pages, Paperback

First published October 25, 2001

Reviews

[Đạt Tiêu · Rating 4 out of 5]

A. Introduction
1. Traditional finance theory has 2 assumptions:
- People make rational decisions.
- People are unbiased in future predictions.
-> Actually, it's not true.
Psychology and emotions always affect people in these things.
2. Behavioral finance studies how people actually behave in a financial setting.
3. Sources of cognitive errors:
- Self-deception: people think they are better than they really are.
- Heuristic simplification: our brain is forced to shortcut complex analyses
because of limited cognitive resources (memory, attention, processing power)
- Mood: anger, sadness, positive/negative feelings all affect people decisions.
- Human interaction and peer effects.
4. It can happen to anyone
5. A behavioral finance theory -> prospect theory

B. Common behavioral effects
1. Overconfidence:
- Overconfidence: overestimate knowledge, underestimate risks, exaggerate skills or
the ability to control situations.
- Overconfident investors tend to:
+ Trade much -> unnecessary costs and low returns
+ Take higher risks (due to overlook risks)
- Causes to overconfidence:
+ Illusion of knowledge: too much information (from internet, media, ...) makes people
believe in their accuracy of their predictions
(information or data does not equal knowledge or skills)
+ Illusion of control: people tend to think they can have influence over the outcome of uncontrollable events
-> Free choice: makes people think they have the control over the result somehow
-> Outcome sequence: after every positive outcome, people think they have the ability to do it again.
-> Task familiarity: the more familiar people are with a task, the more they feel in control
-> Information: the more information people have the greater the illusion of knowledge
-> Past successes: Overconfidence is rooted from past success. It makes people believe they have the ability
(but that's not always the case. Maybe because of pure luck)
-> Active involvement: the more people involve in a task, the more they feel in control
(for instance, online trading allows people to follow very closely)
2. Pride and Regret:
- People avoid actions that creat regret and seek actions that create pride.
-> Disposition effect: investors tend to sell winning stocks too soon (seek pride) and
hold on to losing stocks for too long (because of loss aversion, avoid regret)
- Selling losing stocks sometimes can be tax efficient, whereas selling winning stocks means paying tax
- The degree of regret/pride (loss/gain respectively) is viewed by
+ how investors see their bad decisions as their own or blaming on the economy.
+ reference point: the point at which investors remember (anchoring effect) the stock buying prices
and then compare with their selling prices
3. Considering the past:
- Past outcomes affect people in making their decisions
-> Take more risk, be more optimistic after earning gain, and less risk, be more pessimistic after loss

- House-money effect: take more risk after good outcomes happened. (misjust valuation, buy high price stocks).
- Snake-bite effect: take less risk after bad results happened. (too pessimistic, sell too soon)
- Break-even effect: investors who recently have earned gain and then had a big loss, tend to make this break-even action
- Endowment effect: people tend to growth "feelings" to some items when they own them for a long time.
-> feel hard to let it go (For example, reluctant to sell a losing stock that has been held for a long time)
- Memory affect: people tend to be affected more with drastic and quick changes than slow and gradual changes
-> tend to remember these drastic and quick changes (mostly as reference points)
- Cognitive dissonance: the brain filters information that conflicts with positive self-image
-> tend to see the past more postitively than it actually was.
4. Mental accounting:
- People tend to put money into categories. For example, this money is for the car, that money is for the house,...
- Investors tend to place each investment in a separate account, not see them as a whole portfolio with interaction between each other
-> Limit investors to see the overall portfolio and the big picture of their investments
- People have aversion to debt: not want to get prepaid for work, not want to pay for already-consumed things.
- Sunk cost effect: people tend to consider past costs as a factor of making decisions (should be future costs instead)
The size of the cost and the timing are the two things affect the decision making process.
5. Representativeness and familiarity
- Brain uses shortcuts and emotion filters to simplify the complex of analyzing information
- Representiveness: people tend to assume things that share some similar qualities are quike alike.
For example, some mistakes: good companies equals good stocks, good past return means good future return.
- Familiarity: people prefer familar things than things they do not know well.
-> Have distorted and biased view when it comes to a familiar stock/company/product...
6. Social interaction
- The people you talk to somehow affect your investment decisions.
- Also the media affects investors decision making process as well, mislead investors to active trading and market timing.
- Herding or following the crowd: the fear of missing out make investors follow the crowd,
and it'd be more relieved to lose when everyone is losing.
-> Magnify psychological biases, lead to overvaluation, underestimate risk.
7. Emotion
- Emotion interacts with cognitive evalutation and eventually drives the process of complex decision making.
-> The more complex the decision making process/analyzing is, the more emotion tend to involve.
- Misattribution bias: mood can affect people decisions.
-> Different mood leads to optimistic or pessimistic feelings, which eventually affect investors' analyzing process.
For example: an investor in good mood may use a lower discount rate and neglect bad news or underestimate risk.
-> Irrational exuburance leads to bubbles (misjudge on stock valuation)

C. Self-control
- Homemade dividends ("dividends" from selling stocks) is more tax-efficient than actual cash dividends??
because a stock price will decrease by exactly the amount of the dividend on its ex-dividend date, it neutralizes any financial gain
-> Dividend Irrelevance Theory
1. Understand the biases: keep a list of this and review them before making any decisions.
2. Know why investing: have S.M.A.R.T goals -> keep focus on long term and track closely to the progress.
3. Have quantitative criteria: -> avoid affect of emotions or crowd sentiment, focus only on what matters.
4. Diversify: invest in bond also, own many different types of stocks, not own any of your company stocks
-> shield agains psyhological biases and familiarity.
5. Control investing environment: do not check stocks too regularly (maybe once a month is enough)
-> have a calendar for trading
-> review your portfolio annually

[Anamcara(Kai's Version) · Rating 4 out of 5]

It is a really good book if you want insight on how our emotions and thought processes play a role in our investing and financial decisions. The explanations were easy to understand and there wasn't an over complication of concepts and theories.

[Eya Beldi · Rating 4 out of 5]

It will give you an insight on why investors do what they are doing, the reasons behind their decisions and the way to avoid the bad ones

[Bill Bookworm · Rating 4 out of 5]

I just read Psychology of Money so I thought I'd stay in the same neighborhood for this one. It turns out they could not be more different. This was a better book but if the two books had a child that could be an even better book. This was somewhat of a textbook. If you took the content of this, but geared it more toward the general audience like POM was, I think you'd have a winner.

Here are my notes:
Chapter 2 Overconfidence. People tend to be overconfident in themselves. 82% of people rate themselves an above-average driver. Illusion of control - people bet more on a coin toss when betting before the coin is flipped than when asked to bet after the coin is flipped but before it's revealed. In investing this leads to excessive trading and risk taking.
Chapter 3 Pride and Regret. People inherently try to maximize pride and avoid regret. It feels good to sell a winner and bad to sell a loser (because it feels like admitting you made a mistake), so people tend to sell their winners and hold onto their losers.
Chapter 4 Risk Perceptions. House money effect -- people bet more after winning initially, because you feel like you're playing with house money. Snakebite -- after initially losing money, people become more cautious. Trying to break even -- opposite of snakebite, people sometimes try to make it all back. Gamblers are more likely to bet on long-shot horses at the end of the day after losing money. Endowment effect -- people often demand much more to sell an object than they would be willing to pay to buy it. Cognitive dissonance -- people overestimate their past performance to make it fit with their belief of "I am a good investor"
Chapter 5 Decision Frames. Opting in vs. opting out (to organ donation, or 401k participation). Many decisions are made based on "extremeness aversion" so adding a new option to the mix of choices people are choosing from can swing the results bigly.
Chapter 6 Mental Accounting. People will choose to pay for something like a washer/dryer in equal installments after the machines arrive. But they want to pay for a vacation in equal installments leading up to the vacation. Traditional econ would say they should delay the vacation payments to after the vacation, but people like to have it done with so they can enjoy the vacation and not have the payments looming. People are more likely to save from a year-end bonus or a tax refund than from their regular paycheck.
Chapter 7 Forming Portfolios. Investors don't form portfolios the way portfolio theory says they should. People tend to match each part of their portfolio with their risk tolerance, not the overall portfolio.
Chapter 8 Representativeness and Familiarity. People are more likely to own shares of what they know -- the local company, the stock market of their country, stocks of companies that report in their language. People invest too much money in their own company's stock.
Chapter 9 Social Interaction and Investing. People's portfolios are highly influenced by the portfolios of the people they interact with.
Chapter 10 Emotion and Investment Decisions. People will take more risk on a sunny day because they feel more optimistic. A country's stock markets are more likely to decline following a loss in the World Cup or even following the end of the a popular TV series.
Chapter 11 Self Control and Decision Making. Investors often prefer dividend-paying stocks, even though they could create "homemade dividends" by selling stock and paying cap gains instead of ordinary income tax. Most people would rather have $50 today than $100 in 2 years, but most people would rather have $100 in 6 years than $50 in 4 years, even though that's the same question 4 years in the future.
Chapter 12 Physiology of Investing. Certain genetic markers or physiological traits can predict investment behavior. Testosterone has been associated with riskier behavior. Facial masculinity is positively associated with financial misreporting, insider trading, and option backdating. Female CFAs are more achievement-oriented and less tradition-oriented than both women in the general population and male CFAs.

[Dicky Aliswan Qomarullah · Rating 4 out of 5]

Psychology investing
- Kita sebagai seorang investor tidak boleh overconvidence, over convidence akan membuat investor terlalu banyak melakukan trading dan overconvidence bisa berujung pada return yang di hasilkan investor, hal ini juga akan menimbulkan bias tentang pemilihan saham
- antara kebanggaan dan penyesalan. Investor akan merasa bangga akan pilihanya sendiri ketika mendapatkan return yang positif, dan sebaliknya, investor akan menyesel akan keputusanya jika mengalami kerugian, tetapi efek tersebut akan berkurang jika investor memilih reksadana, karena kesalahan dalam pengambilan keputusan karena orang lain atau hal hal diluar kendali mereka
- Mengenai persepsi tentang resiko, kebanyakkan investor mengambil resiko sesuai dengan keadaan masa lalu mereka. ada beberapa hal yang mempengaruhi managemen resiko para investor 1. House of money atau uang bandar, investor akan cenderung menaikkan resiko ketika saham pilihan mereka telah mengalami kenaikan sebelumnya, mereka berfikir bahwa mungkin jika kehilangan itu bukanlah uang mereka, melainkan uang hasil pemberian, sehingga mereka berani menaikkan resiko. 2. Snake bite atau gigitan ular, kondisi seperti ini adalah ketika investor pertamakali terjun kedunia investasi atau membeli sebuah saham dan harga saham tersebut memberikan return negatif, investor akan berpikir berulangkali untuk kembali berinvestasi atau membeli saham yang sama, dan mereka memilih untuk lebih hati hati dalam menakar resiko kehilangan uang mereka. lalu yang ke 3. Break even point, atau kembali ke modal awal, kondisi ini adalah selayaknya pejudi yang kalah, dan terus terusan bermain hanya untuk mengembalikan modal mereka, mereka tidak memahami seberapa besar resiko kehilangan uang mereka, yang terpenting adalah bagaimana uang mereka bisa kembali atau balik modal.
- Framing, pengambilan keputusan investasi juga bisa berdasarkan suatu framing, apakah framing itu positif (mendapatkan keuntung) atau negatif (mengalami kerugian) dalam sebuah framing, peran fungsi kognitif juga sangat berpengaruh
- Mental akuntansi, mental akuntansi adalah sebuah mental dimana kita lebih melihat jangka waktu dalam penggunaan atau kebermanfaatan, kita akan rela berhutang sebuah smartphone dengan cicilan 12 bulan daripada umroh terlebih dahulu lalu mencicil biaya umroh yang kita keluarkan. dalam mental akuntansi terdapat anggaran mental, dimana mental ini terbentuk dari kita melacak dan mengontrol pengeluaran, lalu sunk cost effect, atau efek biaya hangus, ini adalah efek dari kita mengorbankan sesuatu, misal kita hendak pergi menonton konser, tapi 30 menit sebelum konser hujan lebat menerpa, dan kita dihadapkan dalam sebuah pilihan antara kita tetap berangkat atau kita merelakan uang
- Menyusun portofolio, sebaiknya menyusun portofolio haruslah sesuai dengan tingkat resiko dan tujuan investasi
- Bias, sebagai seorang investor kebanyakan para investor lebih percaya perusahaan dimana mereka bekerja, perusahaan yang dekat dengan lingkungan mereka dan produk yang mereka gunakan sehari hari
- keputsan investasi juga bisa dari interaksi sosial, contohnya jika teman anda membeli saham A dan anda mendapat sebuah insight bahwa saham A akan naik, jika anda tidak memiliki conviction yang kuat anda akan ikut ikutan (FOMO) dalam membeli saham tersebut
- Emosi sangat mempengaruhi keputusan investasi, dimana dalam optimisme terkada orang tidak memperhatikan resiko dalam berinvestasi, dan sebaliknya, seseorang yang pesismis akan selalu mengukur tingkat resiko.
- selain faktor psychologis, polah asuh dan genetika juga mempengaruhi dalam pengambilan keputusan investasi

[Fabio Ismerim Ismerim · Rating 5 out of 5]

Sensacional!!!

Muito bem estruturado, com linguagem fácil e muito objetivo.

O livro apresenta as heurísticas em forma de capítulos explicando o que eles são com referências de pesquisas e experimentos científicos. Em seguida o autor mostra como os vieses são vistos no mercado financeiro, também com citações de experimentos. Por fim, o capítulo finaliza com um resumo e um questionário com perguntas sobre o assunto do capítulo, para que você treine e absorva melhor o conteúdo.

Encontrei esta indicação em algum blog (não lembro qual) e o livro faz parte de material didático de algumas universidades americanas.

É empolgante notar como o mercado financeiro (seja investidor comum, trader, gestor de fundos, etc) tomam atalhos mentais para tomada de decisões e escolhas, e não notam (ainda que possua um arsenal de ferramentas técnicas).

Chamo atenção para o último capítulo do livro - Physiology of Investing - no qual o autor discute e apresenta, sem chegar a conclusões, uma área nova de estudos sobre o impacto dos genes, hormônios, fisiologia, nos investimentos. Um novo ramo de pesquisa conhecido como Genoeconomics vem estudando se existe alguma influência significativa dos nossos genes na tomada de decisão e escolhas no mercado financeiro.

Recomendo para qualquer um que atue no mercado financeiro e para quem se interessa pelo comportamento humano aplicado à finanças. Funciona muito bem como um livro de consultas, ideias para cursos e workshops em geral.

Link Amazon: The Psychology of Investing

[Romel Mora · Rating 4 out of 5]

This book is the first of its kind to delve into the fascinating subject of the psychology affecting investments. Its unique coverage describes how investors actually behave, the reasons and causes of that behavior, why the behavior hurts their wealth, and what they can do about it.Chapter topics include overconfidence, fear of regret and seeking pride, considering the past, mental accounting, forming portfolios, representativeness and familiarity, social interaction and investing, mood and investing, and self control and decision making. One of the greatest aspects of this book is its ability to point out how irrational humans are and how our irrationality ultimately leads to our downfall. For a junior investor such as myself, this book was both enlightening and a good segway for anyone considering going into the world of investments.

[Tracy Phan · Rating 5 out of 5]

I've never found econ books that fun to read

First, I have to admit I rarely read specialized books and am not a big fan of Finance (I hate it actually lol). The only reason I put my hands on this one is that because it's my major assignment at school. But John really got me by his logical writing. The book is well-structured, I love how the examples are so easy to relate to me. Terms and definitions are clear enough for people with little financial and stock market knowledge (like me) to understand. And one more thing makes this book so great is his humor, like how he said those retirement planners should read his book in order to have a better idea of investment. Love it.

[Oguzcan Yesilyaprak · Rating 3 out of 5]

Yatırımları konusu hakkında yazılmış olup yatırım konusu üzerinde psikoloji konusunu içeren tek kitap olan Yatırım Psikolojisi kitap içerisinde yatırımcıların gerçekte nasıl davrandıklarını, bu davranışın nedenlerini ve hangi davranışların servetlerini zedelediğini incelmektedir. Ekonomi kitaplarını sevmesemde okuduğum kitap iyi yapılandırılmış bir kitap olduğundan kaynaklı tanımlar, finans ve borsa bilgisi çok az olan insanların kolay anladığı kitaplardan biridir.

[Quite Old · Rating 5 out of 5]

Very good book, I strongly recommend it. Until the last day of my life I will remember the example from the book about "fat lady who eats only raw vegetables at parties / in restaurants BUT when she is alone in the kitchen, it's time for cakes, donuts, and "fast-food" in other word you need to be true to yourself all the time - without that you won't achieve your shape / investing / life goals. This book is great investing book but it is also great overall lesson. Definitely must read!

[Yuekun Liu · Rating 4 out of 5]

A very delicate summary on behavioural finance. John describes how investors actually behaves and the states the underlying reasons.

Recommend to anyone.

[Gwen Jones · Rating 5 out of 5]

I liked that it was simple to understand. You can tell this was written for lay people to understand and I appreciate that.

[Jason · Rating 3 out of 5]

Useful to know how your brain tries to make you poor.

[Pawin · Rating 4 out of 5]

Such a great book to learn about psychology of investors and speculators. These indirect factor leads to up and down of the market.

[Ujval Nanavati · Rating 4 out of 5]

Simple and timeless axioms that deserve to be re-read every now and then lest we fail them.

[George Zhou · Rating 3 out of 5]

worth a read

[Eugene DeRango · Rating 4 out of 5]

good read

It is a good understanding of the fundamentals of how psychology plays into investing. Should look into some additional reads around this topic.

[Jim Townsend · Rating 5 out of 5]

Very informative

[Thomas Koziara · Rating 5 out of 5]

It starts out pretty good, but it gradually lost my interest by the end.

It has lots of footnotes. They show that a lot of research went into this book. They are unusual in finance books.

[Betty · Rating 4 out of 5]

A very interesting little book that looks at how and why we invest. We are not computers. We are beings with emotions and a very complicated brain. Our brains filter through information at the speed of light, interpreting and storing facts. Coupled with emotional input, you've nothing short of Las Vegas going on with each decision unless you learn to think and respond rather than react.

The book makes some excellent suggestions as to how to make the best wealth building decisions. Often, using our "common" sense, we make the wrong decision, which causes us monetary loss. This book is not for everyone, but is a good read.

[ziombel · Rating 4 out of 5]

I can recommend the book to anyone interested in economics and business. In this work the author presents all kinds of psychological problems investor could meet(overconfidence, pride / fear, sentiment, etc). It is a good representation of pernicious practices in business. I would recommend that to future investors.

//polish
Książkę mogę polecić każdemu zainteresowanemu ekonomią/biznesem. W tym dziele autor przedstawia różnego rodzaju problemy psychologiczne inwestora(nadmierna pewność siebie, poczucie dumy/strachu, sentyment itd). Jest to dobre przedstawienie zgubnych sposobów postępowania w biznesie. Polecam to przyszłym inwestorom.

[SteveR · Rating 4 out of 5]

This is a text book recommended by Matt from one of his finance classes. It is not a technical finance book and a relatively easy read with some very interesting ideas on human nature. The book contains some interesting analogies between investing and gambling and every day decisions that we make about money. Two factors move the market – fear and greed. What’s in your … mind?

[Michael · Rating 5 out of 5]

Understanding the ideas in this book are absolutely key for anyone thinking about individually investing in the stock market. Nofsinger points out so many biases and pre-conceptions that we make in trying to invest which end up hurting people eventually. In my opinion, it’s particularly important for those who think they can invest from simply watching a couple of hours of CNBC a day.

[May Ling · Rating 4 out of 5]

This book was recommended to me by a colleague. It's very short and to the point. Really an easy read that lays out the bulk of bias types that exist within investing or - more broadly - decision making.

A great entre into thinking about why people might make the decisions they make. Useful.

[Maciej · Rating 4 out of 5]

Depressing, despairing, the death of hope, but an important and necessary read for anyone thinking of investing.

[Ryan]

Good overview of many psychological biases and how they affect investors.

[Daniel · Rating 4 out of 5]

Interesting angle to view the world of investing from.