Customer Reviews

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

5 star:		(12)
4 star:		(4)
3 star:		(1)
2 star:		(2)
1 star:		(2)

 

 

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!

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

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!

Nofsinger's book hits the nail on the head. I thought he was writing about me in a couple of the chapters! Now that I have read the book, I can see how I have been making these mistakes. I now catch myself (and sometimes my colleagues) before making an error. I wish I could have read this book two years ago!

I can now see the dotcom euphoria in a whole new light! This book shows how the emotions of many investors contributed to the Internet bubble. Nofsinger shows how psychological biases, like seeking pride and the house money effect, contributed to the bubble. After the bubble, investors are probably succumbing to the biases of regret aversion and feeling snake bit. Read this book to see how to overcome these problems.

This book doesn't attempt to be a complete or rigorous examination of investor psychology (you might even find yourself wondering about some of the conclusions drawn from such limited data in some of the examples); it's more in the 'lightweight but easy to read' variety. As an introduction to 'following the crowd' and other investor temptations though, it does okay. It's good to take stock of yourself occasionally and this book should help. And, thankfully, the pages devoted to the tulip mania of the 1600s was mercifully few (does every investment book these day have to retell that story; often incorrectly).

Professor Nofsinger has written the best summary of behavioral finance concerning financial investing that I have seen. Anyone who is thinking about starting out with investing or is dissatisfied with her or his results should read the book. You will save thousands as a result!

Financial thinkers historically assumed that all investors were absolutely rational and logical. Nothing could be further from the truth. Instead, investors misperceive what is going on around them, assume the best, overestimate their competence, and let emotion whipsaw them (brilliantly displayed with a roller coaster illustration in the book). You will read simple, clear summaries of the research that document these flaws.

Here are a few examples. Those who trade the most do the worst. Go on-line, and you will trade more and hurt your returns. People enjoy the validation they get from having been right, so they prefer to sell winners too soon in order to have that experience rather than make the best economic decision (to dump a low-potential loser and get a tax loss) which will make them feel like they have failed. Most people think it is less risky to buy good management. But those stocks have huge downside risk if management stumbles, while those with lousy management have little further downside risk in many cases. The book also takes a great look at the Internet bubble.

My complaint with the book is that it is overconfident in prescribing solutions. Although the suggestions (if followed) should help, most investors will still trail the market averages. Why doesn't the book make the case for investing in indexed mutual funds? I graded the book down one star for being weak in this area.

The behavioral finance people have done great work in explaining why people do poorly. What they haven't done is run experiments on how to improve investor behavior. This is like telling people it's bad to be overweight, and suggesting that they eat less. That won't lead to weight loss for most people. I hope in the future that Professor Nofsinger will run experiments to find the best ways to help people change their bad habits to better ones. Certainly, his ideas (follow rules of thumb, pay less frequent attention, and quantify your decisions) could potentially help . . . if you can overcome the emotions and misperceptions that drove you to do the wrong thing while feeling comfortable as you did it.

After you read this book, I suggest that you next read John Bogle's Common Sense on Mutual Funds. Those prescriptions will work better than the ones here for 90 percent of investors, in my experience.

You should also think about where else in your life emotion can cause you to sabotage your self interests. How are effective are you in making economic decisions that affect your family and friends? I suspect that many of these same issues apply in other parts of your life.

Learn to take the right risks . . . to reap greater rewards from the same efforts!

Investment Madness is a very practical discussion of a very neglected topic. We frequently allow emotions to affect our decisions in every aspect of our lives. This book shows that investing under the influence of emotions affects your wealth. Read this book and learn how to avoid the pitfalls!

This is an easy-to-read introduction to behavioral finance. Nofsinger writes simply and plainly about the psychological biases that cause people to make bad investment decisions. Don't buy or sell anything until you read this book!

I don't know what I was expecting from this book.

Maybe I was hoping to read something technical on the psychology of investment. This book is not very technical. It seems full of specious arguments.

This is not about investing. Maybe this is about speculating because most of the data is concerned with trading over days or less than a year. That isn't investing. It's speculating.

I'm interested in investing. I want to know about long term actions.

I can't believe how many labels are applied to the various "investment emotions" in this book. If the type was made smaller for each "label" the book would have been even smaller than it was. Drop the cartoons that litter the book and you've got a good size article and not a book.