'Great book! Mickael has done a great job of explaining the insights from over 50 groundbreaking psychological experiments. You will learn how to avoid many of the psychological mistakes made by most investors. He teaches you to watch out for overconfidence and the momentum bias to avoid large losses. He helps you to understand how your social relationships can change your asset allocation risk profile. Forearmed is forewarned. If you apply Mickael's insights, you will improve your investment performance' - Paul Stefansson Executive Director, UBS AG. 'Why are investors sometimes their own worst enemies? As this eminently readable book shows, all sorts of biases affect investors' judgments, ranging from sheer ignorance and emotions to overconfidence or aversions, from selected short-term memory to undue generalizations. Building on the expanding literature in behavioral economics, the experiments reported here shed a useful, often funny, light on the implicit rules investors use to form their judgment and decisions. This book will definitely help you make wiser investment decisions' - Christian Koenig Director, Asian Center, ESSEC Business School. 'Mickael Mangot provides a fantastic tool that individuals as well as financial advisors can immediately apply to their portfolios. This book's success lies in its superbly easy-to-use format: Mangot demystifies the technical terminology of behavioral finance by linking everyday behavior to the world of investing. So while the human examples are enjoyable and interesting (you'll chuckle when you recognize these traits in yourself), he deftly explains how these very human biases lie at the root of 57 simple but very damaging investment mistakes. Most importantly, each conclusion provides a concise, sensible summary to help you correct-and improve-your investment decisions' - Philippa Huckle, CEO, The Philippa Huckle Group. 'This is an insightful book that forces one to question one's own financial behavior. "50 Psychological Experiments for Investors" covers different topics such as savings, equity investment and property investment. The portrait of the investor presented here is harsh but can be highly profitable for anyone who recognizes that he or she is vulnerable to misjudgments and misguided emotions. A must-read for any self-questioning investor' - Jacques-Henri David Vice Chairman Global Banking, Deutsche Bank.
Foreword Chapter 1 A love of anecdotes How we choose information on fallacious criteria 1. Why do you think you have to invest in the stock market when prices have skyrocketed? Momentum bias 2. Why do you buy stocks when the market has gone up and bonds when it has gone down? Momentum management 3. Why are you sure that everyone agrees with your view that the market is going to go up? False consensus 4. Why does Google's success make you want to invest in high-tech? The availability heuristic 5. Why has your stock portfolio only gained 5% this year when you are sure it has earned twice as much? The confirmation bias 6. Why is it that on moving to the boonies you rent an overly expensive apartment? Points of reference Chapter 2 Hopeless at math! How silly mathematical errors enter our financial decisions 7. Why do you play black at roulette when red has just come up four times in a row? The gambler's fallacy 8. Why do you trust the mutual fund that had the best performance last year? Belief in the "hot hand" 9. Why do young savers become rich seniors? The under-estimation of compound interest 10. Why does inflation encourage selling the house and renting instead? The money illusion Chapter 3 All the eggs in a broken basket How our view of risk leads us to poorly diversify investments 11. Why do you refuse to put foreign stocks in your portfolio? Forgetting correlations 12. Why do young people buy Levi stock and older folk buy Hermes? The bias of familiarity 13. Why is 90% of your portfolio in French stocks? National bias 14. Why have you bought stock in that high-flying company in your area? Local bias 15. Why do you own stocks in the company where you work? Employer bias 16. Why does the industrial waste collection sector not attract investors? Emotional reasoning Chapter 4 For me, it's different! How optimism and overconfidence encourage taking excessive risk 17. Why do you look more closely at the potential for growth than at the potential for loss in an investment? Bias of optimism 18. Why do you think that you know precisely when the stock market will crash? Overconfidence 19. Why, after a set-back, do you always consider mutual fund managers to be hapless? Hindsight bias 20. Why do you place more orders when the market is soaring? The self-attribution bias 21. Why do you take more risk after raking in unexpected gains? The "house money" effect 22. Why do you place so many orders on the Exchange each year? Excessive trading 23. Why do you earn less on the market when you place orders on the Internet? Illusion of control on the Internet Chapter 5 An obsession: Never regret anything How the loss and regret aversions inhibit our behaviour 24. Why do you try to sell your house at an unrealistic price when real estate goes down? Loss aversion 25. Why do you keep your losing securities longer than those that are earning? The deposition effect 26. Why do you sell all your losing stocks on the same day? Hedonic editing 27. Why do you re-invest in your losing stocks? The committed expenditure effect 28. Why do you never buy back securities on which you have lost money? The "snake bite" effect 29. Why do you not like to sell stocks which have just gone down? Regret aversion 30. Why do you change nothing in the portfolio that your grandmother has left you? Status quo bias 31. Why do you keep stocks that you would not buy in your portfolio? The endowment effect Chapter 6 When Mars and Venus decide to invest How men and women consider risk and confidence differently in their financial decisions 32. Why does Mars invest more than Venus? Gender differences and attitude toward risk 33. Why does Mars prefer stocks and Venus bonds? Gender differences and investment choices 34. Why does Mars change his portfolio more often than Venus? Gender differences and confidence 35. Why do Venus and Mar
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