Investment Madness: How Psychology Affects Your Investing...And What To Do About It

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9780130422002: Investment Madness: How Psychology Affects Your Investing...And What To Do About It

Why'd you fall for that Internet stock? Why do you always seem to buy high and sell low? Why does it look like everyone else is getting rich but you? As an investor, your emotions are your biggest obstacles -- cutting your returns, and raising your risks. Drawing on the new science of behavioral finance, Investment Madness will show you how to take control of your emotions -- and maximize your profits. Nofsinger shows how to think about your investments more clearly, without the overconfidence that leads many investors to take too many risks, and lower their returns. You'll gain insight into how your self-image impacts your investment decisions, and how to recognize when pride or avoiding feelings of regret are preventing you from taking appropriate action. Discover how to place your recent investment experiences -- good and bad -- in realistic perspective. Learn how to avoid the human tendency to stay with only the financial instruments you're already comfortable with. Finally, understand how the human brain handles investment memories -- and how what you remember may not always be what happened. For every investor, amateur and professional alike.

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From the Back Cover:

WARNING: Allowing emotion to invade your investment decisions can be hazardous to your wealth.

  • Think about your investments more clearly
  • How overconfident investors trade too much, take too many risks, and earn lower returns
  • The investment impact of your self-image
  • Why avoiding feelings of regret now will cause you even greater regrets later
  • Yesterday's trade, today's emotions, tomorrow's mistake
  • Placing your recent investment experiences in realistic perspective
  • The devil you know versus the devil you don't
  • Familiarity breeds investment—but not necessarily profit
  • Is your memory playing tricks with you?
  • You're not alone. We'll tell you what to do about it
  • Not all information is alike
  • Avoiding herd mentality: your chat room, your brother-in-law, and other temptations. Remember when dotcoms were going to end business as we know it?

How your psychology reduces your profits and increases your risks-and what to do about it!

  • Why'd you fall for that Internet stock?
  • Why'd you keep money in cash when it could've earned far better returns elsewhere?
  • Why haven't you fully funded your retirement plan when you know you should?
  • Why do you always seem to buy high and sell low?
  • Why does it look like everyone else is getting rich but you?

It's your psychology. It's your emotions. As an investor, they're your biggest obstacles. They cut your returns, and raise your risks. It's about time you did something about it. Investment Madness will show you how. Drawing on the new science of behavioral finance, Dr. John Nofsinger shows you how to:

  • See through the "illusion of control" that makes you overconfident about your investments
  • Objectively evaluate the stocks and financial instruments you've inherited
  • Recognize the feelings of pride, regret, and herd behavior that lead to disaster
  • Improve your "mental accounting"—and your portfolio's diversification

With today's instantaneous Internet-based trading, your psychological biases have become more dangerous than ever. Investment Madness delivers expert techniques and mental strategies that will empower you with true self-control—the decisive factor in investment success.

About the Author:

DR. JOHN NOFSINGER is a finance professor at Washington State University. His 1997 paper, "Herding and Feedback Trading by Institutional Investors" written with Richard W. Sias, was awarded "Best of the Best" and "Best Paper in Investments" by the Financial Management Association. He has also done advanced research for the New York Stock Exchange and the Association for Investment Management and Research. Nofsinger holds a doctorate from Washington State University.

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