Investment Madness: How Psychology Affects Your Investing...And What To Do About It [Hardcover]

John R. Nofsinger (Author)

Book Description

Series: Financial Times (Prentice Hall) | Publication Date: June 21, 2001

Why'd you fall for that Internet stock? Why do you always seem to buy high and sell low? Why does it look like everyone else is getting rich but you? As an investor, your emotions are your biggest obstacles -- cutting your returns, and raising your risks. Drawing on the new science of behavioral finance, Investment Madness will show you how to take control of your emotions -- and maximize your profits. Nofsinger shows how to think about your investments more clearly, without the overconfidence that leads many investors to take too many risks, and lower their returns. You'll gain insight into how your self-image impacts your investment decisions, and how to recognize when pride or avoiding feelings of regret are preventing you from taking appropriate action. Discover how to place your recent investment experiences -- good and bad -- in realistic perspective. Learn how to avoid the human tendency to stay with only the financial instruments you're already comfortable with. Finally, understand how the human brain handles investment memories -- and how what you remember may not always be what happened. For every investor, amateur and professional alike.

Editorial Reviews

From the Back Cover

WARNING: Allowing emotion to invade your investment decisions can be hazardous to your wealth.

• Think about your investments more clearly
• How overconfident investors trade too much, take too many risks, and earn lower returns
• The investment impact of your self-image
• Why avoiding feelings of regret now will cause you even greater regrets later
• Yesterday's trade, today's emotions, tomorrow's mistake
• Placing your recent investment experiences in realistic perspective
• The devil you know versus the devil you don't
• Familiarity breeds investment—but not necessarily profit
• Is your memory playing tricks with you?
• You're not alone. We'll tell you what to do about it
• Not all information is alike
• Avoiding herd mentality: your chat room, your brother-in-law, and other temptations. Remember when dotcoms were going to end business as we know it?

How your psychology reduces your profits and increases your risks-and what to do about it!

• Why'd you fall for that Internet stock?
• Why'd you keep money in cash when it could've earned far better returns elsewhere?
• Why haven't you fully funded your retirement plan when you know you should?
• Why do you always seem to buy high and sell low?
• Why does it look like everyone else is getting rich but you?

It's your psychology. It's your emotions. As an investor, they're your biggest obstacles. They cut your returns, and raise your risks. It's about time you did something about it. Investment Madness will show you how. Drawing on the new science of behavioral finance, Dr. John Nofsinger shows you how to:

• See through the "illusion of control" that makes you overconfident about your investments
• Objectively evaluate the stocks and financial instruments you've inherited
• Recognize the feelings of pride, regret, and herd behavior that lead to disaster
• Improve your "mental accounting"—and your portfolio's diversification

With today's instantaneous Internet-based trading, your psychological biases have become more dangerous than ever. Investment Madness delivers expert techniques and mental strategies that will empower you with true self-control—the decisive factor in investment success.

About the Author

DR. JOHN NOFSINGER is a finance professor at Washington State University. His 1997 paper, "Herding and Feedback Trading by Institutional Investors" written with Richard W. Sias, was awarded "Best of the Best" and "Best Paper in Investments" by the Financial Management Association. He has also done advanced research for the New York Stock Exchange and the Association for Investment Management and Research. Nofsinger holds a doctorate from Washington State University.

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Product Details

• Hardcover: 192 pages
• Publisher: Pearson Education; 1st edition (June 21, 2001)
• Language: English
• ISBN-10: 0130422002
• ISBN-13: 978-0130422002
• Product Dimensions: 9.8 x 6.3 x 0.8 inches
• Shipping Weight: 1.2 pounds
• Average Customer Review: 4.0 out of 5 stars  See all reviews (21 customer reviews)
• Amazon Best Sellers Rank: #776,903 in Books (See Top 100 in Books)

More About the Author

John Nofsinger is a Professor of Finance and the Nihoul Faculty Fellow in Finance at Washington State University. He is one of the world's leading experts in behavioral finance and is a frequent speaker on this topic at investment management conferences, universities, and academic conferences. He has often been quoted or appeared in the financial media, including The Wall Street Journal, Financial Times, Fortune, Business Week, Smart Money, Money Magazine, Washington Post, Bloomberg, Nightly Business Report (NBR), and CNBC, and other media from The Dolans to TheStreet.com.

He has authored/coauthored eight trade books, textbooks, and scholarly books that have been translated into seven different languages. John is also a highly successful scholar. He has published more than 30 articles in prestigious scholarly journals (like the Journal of Finance and Journal of Business) and practitioner journals (like the Financial Analysts Journal and Journal of Wealth Management). He has also conducted research for groups such as private investment firms, the New York Stock Exchange, the CFA Institute, and policy think-tanks. His academic research activities have won many awards.

Customer Reviews

Most Helpful Customer Reviews

13 of 14 people found the following review helpful:

5.0 out of 5 stars Simple truths are enduring truths, July 8, 2001

By 

Edward Fitzpatrick III (Milwaukee, WI United States) - See all my reviews

This review is from: Investment Madness: How Psychology Affects Your Investing...And What To Do About It (Hardcover)

I read this book over the weekend and I am glad to have it in my investment library. It is well written and the information is truly valuable and thought provoking. There are several simple truths that Professor Nofsinger addresses, but the one I found most timely and important to me personally is that more information does not equate with more knowledge. Reading Investment Madness caused me to look in the mirror and identify the psychological flaws I bring to my own investment program. I highly recommend this book to anyone who thinks investing successfully is a simple task based mostly on the immediate access to better information. If only it were that simple!

9 of 10 people found the following review helpful:

4.0 out of 5 stars wonderful introduction to behavioral finance, August 12, 2001

By 

Larry "avid reader" (St. Louis, Mo. USA) - See all my reviews

This review is from: Investment Madness: How Psychology Affects Your Investing...And What To Do About It (Hardcover)

I am the author of two books on investing, and Modern Portfolio Theory. I have become fascinated by the field of behavioral finance and did in fact include a section of it in my second book, What Wall Street Doesn't Want You to Know. I have read just about everything in this field, as I will have a book to be released in the Spring of 2002 focusing mainly on this subject. This book, along with Why Smart People Make Big Money Mistakes is a wonderful introduction to the field. The stories provided much insights into how we let psychology impact our investment decisions, most often in detrimental ways. I have to disagree with the one reviewer that said the author didn't provide solutions.While I think he might have been more explicit, I think the reader just missed the points. I would definitely recommend the book

5 of 5 people found the following review helpful:

5.0 out of 5 stars I'm Mad About Investment Madness, July 7, 2001

By 

Julius A Frenier (Anchorage, Alaska United States) - See all my reviews

This review is from: Investment Madness: How Psychology Affects Your Investing...And What To Do About It (Hardcover)

I recommend John Nofsinger's book to any investor who has agonized over the outcome of his investment decisions. In Investment Madness Nofsinger describes each psychological bias and then shows how it affects investing decisions. I like the way he uses everyday life activities and punctuates each point with cartoons, investor stories, and scholarly studies. A great new read!