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Investing and the Irrational Mind: Rethink Risk, Outwit Optimism, and Seize Opportunities Others Miss Hardcover – April 11, 2011
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About the Author
Robert Koppel is a former member of the Chicago Mercantile Exchange (CME), a hedge fund partner, and president of his own division at Rand Financial. The author of numerous books on the psychology of trading, Koppel was the senior business writer for Onmoney.com. His work has appeared in the national financial press and been featured on CNN, CNBC, and NPR.
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Top Customer Reviews
I like reading about how we think and how the brain works. Many investment mistakes are illogical but people make them all the time. Koppel cites Arily's Predictably Irrational book and builds on it.
Koppel has researched all the research on mistakes investors make. Early on, he quotes Baruch:
"Only as you do know yourself can your brain serve you as a sharp and efficient tool. Know your own failings, passions and prejudices so you can separate them from what you see."
And Baruch's rules for successful investing:
1 - don't speculate unless you do it full time (I violate that one or perhaps I don't since I do not like to think that I speculate)
2 - resist "information" or tips
3 - Before purchasing a security, know everything you can about the company.
4 - never attempt to buy at the bottom and sell at the top.
5 - Take your losses quickly
6 - don't buy too many securities. Focus on a few and watch them.
7 - reappraise strategy periodically.
8 - never invest all your funds - keep some liquid
9 - don't try to be a jack of all investments - stick to a field you know (I notice I tend to make money in technology and lose money in other areas)
I liked all the studies Koppel cites. It is a well researched book.
He points out the "self serving bias". We tend to attribute our success to us and our failures to external events. I call this the "be careful when you start thinking you are smart" syndrome.
Good book - makes me re-think some of my investment strategy.
The results from the interviews with top traders and the compelling evidence from clinical research shifts focus for traders from "systems only" (external programs) to balance (detailed trading method AND experienced adaptability - left brain/right brain stasis).
As a full time trader and a trading coach, most of my instruction time with clients lies not in better application of "system", but in how each trader processes information - usually with unintended results and the illusion of control from "having purchased someone else's system".
In my experience from reading every book I can find written about trading psychology, Robert has hands down provided concise research and practical application from top traders to prove without doubt that the biggest obstacle traders face is themselves.
And in conclusion Robert details the steps traders can follow to turn their destructive behavioral patterns into life-long positive assets that extend well beyond their original intent (improve trading results).
The purpose of the book is to help the reader to break free from the psychological mechanisms that reinforce various investing fallacies. "The solution begins with awareness, leading to cognitive and emotional strategies that reinterpret our market experience through language, belief, feelings, meaning, and action." In my meaning Koppel does a great job with the first step - awareness - but gives the reader too little guidance on how to establish "bias resistant" strategies and processes. Awareness of psychological biases is not enough as it is very hard to imagine away reflexive mental processes. Knowing yourself does not guarantee that you can take that second step by yourself. The book is rescued by the depth and breadth of the author's knowledge when it comes to the subjects he's presenting.
The two most interesting and novel topics to me were the research presented when it comes to intuition and to what's called Theory of Mind. I've often found traders public opinions on intuition a bit too romanticized - seriously, how often do we want to read about George Soros back aches? Intuition, as the author presents it, is a sort of pattern matching process that enables an investor to quickly reach a course of action. Intuition is facilitated by mental models built by knowledge and long experience.Read more ›
Even the most rational among us, he says, while trained to look at the market as an orderly spreadsheet, should actually be seeing it more as a "jungle." This book is an excellent "survival guide" to navigating the irrationality inherent within us and the marketplace.
Hard to put down at 300 pages at it draws on the latest research from neuroeconomics and behavioral finance. Not just for investors, traders and business people, but general readers. Highly recommended.
Most Recent Customer Reviews
I am constantly reading about markets and investing. This book explores the forces driving markets. Read morePublished 14 days ago by Doug Dittrich
Simply put: Reading this book made me money and I owe Robert Koppel a drink or more if I ever see him. Read morePublished 13 months ago by Jonathan Klein
Excellent work. Addresses issues that affect new and old traders each and every day. Provides ideas to start correcting issues that prevent moving on in the business of investing.Published on March 4, 2013 by Steve Wilkinson
I have read many books on trading and have traded for 15 yrs, so I am not new to this arena.
This book I would classify as a 'running commentary' on the topic. Read more