Even the best Wall Street investors make mistakes. No matter how savvy or experienced, all financial practitioners eventually let bias, overconfidence, and emotion cloud their judgement and misguide their actions. Yet most financial decision-making models fail to factor in these fundamentals of human nature. In Beyond Greed and Fear, the most authoritative guide to what really influences the decision-making process, Hersh Shefrin uses the latest psychological resear… More >>
Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing
another book by an academic who feels the need to write for some reason besides clearly conveying knowledge and insight.
Rating: 1 / 5
So long as market investors are human beings rather than machines, market participants will be governed by emotion. The efficient market theory, as Warren Buffett states, works most of the time. But when unusual or exceptional news comes into play, a stock (and/or markets) nearly always overreacts.
The best book I have found on investing is “The Intelligent Investor”. There is a clear picture of what works and does not work in investing, and why. There is a fair amount of analysis of the behavior of market participants.
Warren Buffett asserts that he doesn’t have much use for what is taught in a typical college business class. As he points out, if professors understand stocks and markets so well, why are so few of them wealthy? People like Ben Graham, Buffett and Peter Lynch are not ‘lucky’. They read a great deal, they have keen insight into what makes a stock go up and they are unafraid to buy when prices are low if prospects look good. I would prefer to emulate those who are truly successful rather than those who postulate about what may work.
Rating: 3 / 5
Hersh Shefrin does a superb job of giving a quick overview of the range of behavioral phenomena in the first chapters of this book. After that the story becomes less focused and the reader is well advised to read those subjects that truly interest her/him rather than trying to read the book cover to cover.
Rating: 5 / 5
As a technical analyst, option trader, and former portfolio manager, I am currently studying behavioural phenomena…hoping to get a better grasp of the current madness in the markets.
The book starts out with very interesting topics, but loses its luster about halfway thru. There are many occasions when I felt the author does not have a good understanding of finance…maybe he understands the theory, but he lacks practical experience.
For example, he claims the implied volatility smile, which sometimes prices 100% implied vol for puts, is a manifestation of investor’s cognitive weaknesses. This is not only factually wrong, it is foolish and it would make the author a “sucker” in any option trading pit. There are periods when implied vol cannot be high enough (e.g. the current period)and if you dare to use Mandelbrot’s approach, you may even end up questioning whether there can be an upper bound to implied vol. The author uses a mere 3 year history during the 1990s to claim that historic vol is always around 20-30%. Any intern that handed me such simplistic analyses would be assigned to the backoffice immediately.
What would the author critisize here: Hindsight bias. Isn’t he overconfident himself, when it comes to his own “interpretations” of investor fallacies?
I dare him to price put options in the current environment, where the chances of recovery or fatal depression are about even. What is your vol on 2yr S&P puts with strike 300, dear author?
Conclusion: I am not sure I would recommend the whole book to anybody. Perhaps I would make photocopies of the first few chapters and hand them out to second year undergrads.
Rating: 2 / 5
I am currently enrolled in a masters program in International Business majoring in Finance (University Maastricht, The Netherlands (www.unimaas.nl) . For a course on behavioral finance, I had to use this book as a reference. Though it is not quiet a hard core finance book, it is useful to learn about real life examples from the corporate field and to see the contradictions with overall acknowledged assumptions on investors behavior and real life results.
The book is easy and fast to read and hold lots of examples. It is a perfect book for people interested in finance, but I doubt the academic use of it (no offense to both the author and my course coordinator).
Rating: 3 / 5