In the second half of Chapter 22, Larry Harris digs into why that 5-star mutual fund you saw in a magazine might be a terrible investment. The industry is designed to hide the losers and highlight the lucky.
In Part 1 we covered the four types of informed traders: value traders, news traders, technical traders, and arbitrageurs. Now we get to the really good stuff. What happens when all these informed traders compete? How efficient do prices actually get? And why can markets never be perfectly efficient?
Chapter 14 of Behavioral Finance and Investor Types by Michael M. Pompian takes a step back from psychology and biases. Instead it asks a very basic question: do you actually have a plan? Not an investment strategy. Not a stock pick. A plan. Because financial planning and investing are not the same thing, and a lot of people confuse the two.
This is a retelling of Chapter 12 (Fintech) from “Behavioral Finance for Private Banking” by Thorsten Hens, Enrico G. De Giorgi, and Kremena K. Bachmann (Wiley, 2018).
Chapter 8 of Investing Psychology is where Tim Richards takes everything from the book and turns it into a myth-busting session. Ten myths. All of them things most people believe. All of them wrong. Or at least, way more complicated than we think.
In Chapter 22, Larry Harris asks the million-dollar question: Are you a genius, or just lucky? Most people trade because they want to get rich quickly, but few realize that beating the market is one of the hardest things in the world.
Chapter 10 is where Harris gets into one of the most important ideas in the entire book: how certain traders actually make prices accurate. Not because they want to help society. They just want to make money. The price accuracy is a side effect.
Chapter 13 of Behavioral Finance and Investor Types by Michael M. Pompian is about the single most important investment decision you will ever make. Not which stocks to buy. Not when to buy them. It is about how you split your money across different types of investments. That is asset allocation.
Part 1 covered stocks and the basics of asset classes. Now in the second half of Chapter 12 of Behavioral Finance and Investor Types, Michael Pompian walks through the rest of the investment universe: bonds, hedge funds, real assets, and finally how to put them all together into a portfolio.
Previous: Chapter 6 Part 2
After six chapters of bad news about our brains, Chapter 7 finally gives us something we can actually use. Richards calls it “Good Enough Investing.” Not perfect investing. Not beat-the-market-every-year investing. Just good enough.