By Mickäel Mangot
Great ebook! Mickäel has performed a superb task of explaining the insights from over 50 groundbreaking mental experiments. you'll stay away from a few of the mental blunders made via such a lot traders. He teaches you to monitor out for overconfidence and the momentum bias to prevent huge losses. He enables you to know how your social relationships can switch your asset allocation hazard profile. Forearmed is forewarned. when you practice Mickäel's insights, you'll enhance your funding performance.
Executive Director, UBS AG
Why are traders occasionally their very own worst enemies? As this eminently readable ebook exhibits, all kinds of biases impact traders' judgments, starting from sheer lack of knowledge and feelings to overconfidence or aversions, from chosen temporary reminiscence to undue generalizations. construction at the increasing literature in behavioral economics, the experiments suggested right here shed an invaluable, frequently humorous, light...
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Extra info for 50 Psychological Experiments for Investors
Why is it that on moving to the boonies you rent an overly expensive apartment? CHAPTER 2: Hopeless at Math! 7. Why do you play black at roulette when red has just come up four times in a row? 8. Why do you trust the mutual fund that had the best performance last year? 9. Why do young savers become rich seniors? 10. Why does inflation encourage selling the house and renting instead? CHAPTER 3: Putting All Your Eggs in a Broken Basket 11. Why do you refuse to put foreign stocks in your portfolio?
This is notably the case during initial public offerings when investors participate in introductions just because previous introductions of “similar” firms have gone pretty well in the recent past. There was a temptation to buy shares of EDF (the French electricity utility) at its appearance on the French Stock Exchange only because the introduction to the Exchange of GDF (the French gas utility), which was perceived as a similar company, had gone well. And this despite the fact that companies are very different, as are their prospects.
9% Conclusion Certainly the momentum bias arises as much from ignorance of the elementary laws of probability as from lack of information on historic returns. Increases of 15 percent in real estate prices or of 30 percent in the stock market are extreme phenomena that are much less probable than more modest changes conforming to historical averages. Betting on them is like betting on snow in Beijing in October. It is possible, but surely not very probable, even when July, August, and September have been quite cool.