We’ve spent the last two weeks retelling Tim Richards’ “Investing Psychology” (ISBN: 978-1-118-72219-0). It’s been a bracing, sometimes painful journey through the glitches of the human mind.
We’ve reached the end of the tour. In the final chapter of “Investing Psychology,” Tim Richards pulls back the curtain on the entire investment industry.
We’re nearing the end of Tim Richards’ “Investing Psychology.” In Chapter 8, he tackles the myths that keep us trapped in bad financial habits.
We’ve spent a lot of time dismantling our egos and exposing our biases. Now, in Chapter 7, Tim Richards gives us a toolkit to build something better. He calls it “Good Enough Investing.”
Continuing our look at Chapter 6. We know we need to look at the numbers. Now let’s look at the specific mental exercises that can save your portfolio.
We’ve spent the last five chapters talking about how biased we are. Now it’s time for the “how-to” part. How do we actually fix these mental glitches?
Picking up from Part 1 of Chapter 5. We know the institutions are playing a different game. Now let’s look at the actual humans running the show and why their biology might be messing with your money.
When we have a toothache, we go to a dentist. When we have a legal problem, we call a lawyer. So when we have money to invest, we go to a professional, right?
Picking up from Part 1 of Chapter 4. We know that groups are dangerous. Now let’s look at how the way information is “framed” changes how we spend our money.
Humans are social animals. We evolved to survive in groups, and that means we have a deep-seated need to fit in. But in Chapter 4, Tim Richards explains that while “conforming” kept our ancestors alive, it’s making modern investors broke.
Continuing with Chapter 3 of “Investing Psychology.” We’re looking at all the weird external stuff that influences our money.
Experience actually helps with some biases. Research shows that older investors are less prone to the disposition effect (selling winners and holding losers).
We like to think of ourselves as independent thinkers. The “American Dream” is built on the idea that you can do anything if you just try hard enough. But in Chapter 3, Tim Richards shows us that we’re heavily influenced by the situation we’re in, often without even knowing it.
Picking up from where we left off in Chapter 2. We’ve established that we’re all overconfident. Now let’s look at how that overconfidence turns into specific, expensive mistakes.
We all like to think we’re smart. If we didn’t think we were going to make money, we wouldn’t invest. But here’s a cold splash of water: 93% of American drivers think they’re “above average.” Mathematically, that’s impossible.
Continuing our deep dive into Chapter 1 of Tim Richards’ “Investing Psychology.” Last time, we talked about how our senses lie. Today, we’re looking at why we think we’re in charge when we definitely aren’t.
Wandering around the average investor’s mind is like taking a tour of Wonderland with the White Rabbit. Most of what we think is true is actually false.
I’ve spent over 20 years in IT and a lot of time looking at charts and numbers. One thing I’ve learned is that the math is often the easy part. The hard part is the gray matter between your ears.
So we made it. 17 posts later, and we’ve covered the entire “Behavioral Finance for Private Banking” by Thorsten Hens, Enrico G. De Giorgi, and Kremena K. Bachmann. That was a lot of ground.
So we made it through all 15 chapters of Behavioral Finance and Investor Types by Michael M. Pompian. Here’s what I think about the whole thing.
This is a retelling of Chapter 14 (Conclusions) from “Behavioral Finance for Private Banking” by Thorsten Hens, Enrico G. De Giorgi, and Kremena K. Bachmann (Wiley, 2018).
So we made it. 9 chapters, 17 posts, one brain that’s a little more aware of its own tricks.
This was “Investing Psychology: The Effects of Behavioral Finance on Investment Choice and Bias” by Tim Richards (ISBN: 978-1-118-72219-0, Wiley 2014). And it was worth every page.
This is it. Chapter 15 of Behavioral Finance and Investor Types by Michael M. Pompian is where everything comes together. All those chapters about biases, personality types, asset classes, and financial planning? They were building up to this. The final chapter answers the obvious question: okay, I know my investor type, now what do I actually do with my portfolio?
Theory is nice. But does behavioral finance actually work when real people sit across from real bankers with real money on the table?
We made it. Chapter 9 is the final content chapter of Tim Richards’ “Investing Psychology.” And it’s not really about new ideas. It’s a wrap-up. A summary. A last attempt to remind you what you should have learned, and why most of us will still ignore it.
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.
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.
Here’s a question most people never think about. When you walk into a private bank and sit down with an advisor, what exactly is the process? Is there even a process? Or does the advisor just pick investments based on their own favorites and hope for the best?
We continue with Chapter 6 of Tim Richards’ Investing Psychology. In Part 1, we covered the early debiasing strategies. Now we get into the harder stuff: why we can’t let go, why we fall in love with stocks, and whether “good enough” is actually good enough.
Chapter 10 of “Behavioral Finance for Private Banking” is where everything from the earlier chapters comes together. All the biases, prospect theory, loss aversion, mental accounting, it all converges here. Into one practical question: how do you figure out how much risk a client can actually handle?
Up to this point in Behavioral Finance and Investor Types, Michael Pompian has been talking about psychology, biases, and investor personalities. Chapter 12 switches gears. Now he lays out what you can actually invest in. Because knowing your own biases is great, but at some point you need to understand the tools on the table.
Chapter 6 is called “Debiasing.” After five chapters of telling us how broken our brains are, Richards finally starts talking about what we can actually do about it. The short answer: there is no magic fix. But there are tools that help.
You’ve probably heard the standard advice. When you’re young, put your money in stocks. As you get older, shift to bonds. Simple. Clean. Fits on a napkin.
If the Preserver is the cautious tortoise and the Follower goes with the crowd, the Accumulator is the person at the poker table who shoves all in and stares you down while doing it. Chapter 11 of Behavioral Finance and Investor Types by Michael M. Pompian introduces the most aggressive of the four behavioral investor types.
So you picked your ideal portfolio. Good stocks, some bonds, maybe real estate. Everything is balanced perfectly. Now what? Do you just sit there and never touch it again?
We continue with the second half of Chapter 5 from Tim Richards’ “Investing Psychology.” If Part 1 was about how the professional investing industry takes your money, Part 2 is about how corporations and your own trading habits finish the job.
Chapter 10 of Behavioral Finance and Investor Types by Michael M. Pompian introduces the Independent. If the Follower from the last chapter was the passenger, the Independent is the person who insists on driving. And reading the map. And ignoring the GPS because they “know a shortcut.”
When we get sick, we go to a doctor. When something breaks, we call a professional. So when it comes to investing, we hand our money to financial experts. Makes sense, right?
Chapter 7 of “Behavioral Finance for Private Banking” is about structured products. If you’ve never heard of them, don’t worry. Most people haven’t. But by the end of 2007, there were more than 340 billion Swiss francs invested in them in Switzerland alone. That’s 6.5% of all assets under management. Over 20,000 different structured products listed on the Swiss stock exchange.
Chapter 9 of Behavioral Finance and Investor Types by Michael M. Pompian introduces the Follower. And honestly, this one probably describes more people than any other type in the book.
In Part 1 we covered how groups and social pressure mess with your investment decisions. Now let’s get into something even sneakier: how language, trust, and social networks warp the way we think about money.
This is a retelling of Chapter 6, Part 2 (sections 6.7-6.9) from “Behavioral Finance for Private Banking” by Thorsten Hens, Enrico G. De Giorgi, and Kremena K. Bachmann (Wiley, 2018).
Chapter 8 of Behavioral Finance and Investor Types by Michael M. Pompian introduces the first of the Behavioral Investor Types: the Preserver. And honestly, if you’ve ever been too scared to invest your savings because “what if the market crashes tomorrow,” this chapter is about you.
This is a retelling of Chapter 6 Part 1 (sections 6.1 through 6.6) from “Behavioral Finance for Private Banking” by Thorsten Hens, Enrico G. De Giorgi, and Kremena K. Bachmann (Wiley, 2018).
Chapter 7 of Behavioral Finance and Investor Types by Michael M. Pompian is where theory finally meets practice. After six chapters of background, frameworks, and definitions, you actually get to take the quizzes and figure out what type of investor you are. Two quizzes, to be specific.
Chapter 4 of Investing Psychology is where Tim Richards talks about something we all deal with but rarely notice: other people messing with our financial decisions. Not on purpose. Just by existing around us.
Previous: Chapter 3 Part 1
We’re still in Chapter 3 of Tim Richards’ “Investing Psychology.” In Part 1, we covered how situations mess with your head. Now let’s talk about something even weirder: your mood, the weather, and why shouting “Fire!” in a theater is basically what happens during a market crash.
This is a retelling of Chapter 5 (Diagnostic Tests for Investment Personality) from “Behavioral Finance for Private Banking” by Thorsten Hens, Enrico G. De Giorgi, and Kremena K. Bachmann (Wiley, 2018).
Chapter 6 of Behavioral Finance and Investor Types by Michael M. Pompian is where it all comes together. After two chapters on personality theory and personality testing, Pompian finally introduces the thing the whole book is building toward: his Behavioral Investor Type (BIT) framework.
Chapter 4 covered the history of personality theory. Now in Chapter 5 of Behavioral Finance and Investor Types, Michael Pompian moves to the practical side: how do you actually test for personality? Because having a theory is nice, but you need a way to measure it. And that’s what this chapter is about.
Previous: Chapter 2 Part 2
You survived your own ego in Chapter 2. Good job. But here’s the problem. Even if you fix your overconfidence, your environment can still ruin your investing decisions. Chapter 3 of Tim Richards’ book is all about situational finance. The idea that the world around you pushes you into decisions you think are your own.
Chapter 4 of “Behavioral Finance for Private Banking” is short but it hits hard. It asks one simple question: what is actually happening inside your brain when you make money decisions?
Traditional finance has this idea that money is the great equalizer. Doesn’t matter if you’re from Japan or Nigeria or Norway. We all want the same thing: good returns, low risk. Press a few buttons, buy some stocks, done.
In Part 1 we talked about overconfidence, loss aversion, and the disposition effect. Now let’s keep going with the rest of Chapter 2. This part gets into emotions, Black Swans, mental accounting, and some practical ideas on how to not sabotage yourself.
Chapter 4 of Behavioral Finance and Investor Types by Michael M. Pompian takes a step back from finance entirely. Instead, it walks through the history of personality theory. Why? Because before you can classify investor types, you need to understand how psychologists figured out personality types in the first place.
This is a retelling of Chapter 2 (second half) from “Behavioral Finance for Private Banking” by Thorsten Hens, Enrico G. De Giorgi, and Kremena K. Bachmann (Wiley, 2018).
Chapter 2 of Tim Richards’ book is called “Self-Image and Self-Worth.” And the title tells you everything. This chapter is about how your ego quietly destroys your investment returns.
Chapter 3 of Behavioral Finance and Investor Types by Michael M. Pompian is where the real meat starts. This is the catalog of all the ways your brain sabotages your investing. Pompian calls them “the building blocks” and splits them into two big groups: cognitive biases and emotional biases.
Chapter 2 of “Behavioral Finance for Private Banking” is where the book gets really practical. This is where Hens, De Giorgi, and Bachmann lay out the specific mental traps that mess up our investment decisions. And there are a lot of them.
This is Part 2 of Chapter 1 from “Investing Psychology” by Tim Richards. If you missed the first part, go read Chapter 1 Part 1 first. We covered how your senses trick you. Now we get into how your brain takes shortcuts and how other people’s behavior messes with your money.
Chapter 2 of Behavioral Finance and Investor Types by Michael M. Pompian opens with a quote I really like. Meir Statman from Santa Clara University said: “People in standard finance are rational. People in behavioral finance are normal.” That pretty much sums up the whole chapter.
Previous: Intro post
Chapter 1 of Investing Psychology is called “Sensory Finance.” And it starts with a punch to the ego.
This is a retelling of Chapter 1 (Introduction) from “Behavioral Finance for Private Banking” by Thorsten Hens, Enrico G. De Giorgi, and Kremena K. Bachmann (Wiley, 2018).
Chapter 1 of Behavioral Finance and Investor Types by Michael M. Pompian opens with a Picasso quote: “I’d like to live as a poor man, with lots of money.” That pretty much sets the tone. We all want financial success, but something keeps getting in the way. And that something is usually us.
So I just finished reading this book called Behavioral Finance and Investor Types by Michael M. Pompian. And honestly? It messed with my head a little. In a good way.
So I just finished reading “Behavioral Finance for Private Banking” by Thorsten Hens, Enrico G. De Giorgi, and Kremena K. Bachmann. Second edition, published by Wiley in 2018. ISBN: 9781119453703.
I just finished reading “Investing Psychology: The Effects of Behavioral Finance on Investment Choice and Bias” by Tim Richards. And I need to talk about it.