The Psychology of Investing [Paperback]

John R. Nofsinger (Author)

Book Description

Publication Date: January 15, 2002 | ISBN-10: 0130930245 | ISBN-13: 978-0130930248 | Edition: 1st

For undergraduate and graduate Investments courses.The Psychology of Investing is the first text of its kind to delve into the fascinating and important subject of the psychology affecting investments. Traditional finance has focused on developing the tools which investors use to optimize expected return and risk. Understanding the psychology of investing will complement the material covered in traditional investments text.

Editorial Reviews

From the Back Cover

Traditional finance has focused on developing the tools that investors use to optimize expected return and risk. Understanding the motivations behind this behavior is extremely important when applying these financial tools. This is the first text of its kind to delve into the fascinating and important subject of the psychology affecting investments!

Includes coverage of:

• Behavioral knowledge—Draws from psychology, management, marketing, economics, and finance.
  Students can easily understand the relevance, use, and importance of the material presented across different business disciplines.
• Examples of psychological biases—Illustrated with examples of everyday behavior, and the effect of psychological biases on investment decisions is then described.
  Shows students bow to overcome their biases to increase their wealth!
• Both investment as well as non-investment examples—Used throughout the text to illustrate how different concepts relate to investing.
  This approach first helps students see how the behavior covered relates to everyday life and then ties the behavior to investment decisions.

For more information on this and other Prentice Hall Finance titles, please visit our website at www.prenhall.com/finance

Excerpt. © Reprinted by permission. All rights reserved.

An old Wall Street adage states that two factors move the market: fear and greed. Although true, this characterization is far too simplistic. The human mind is very sophisticated, and human emotions are very complex. The emotions of fear and greed just don't adequately describe the psychology that affects people. This book is one of the first texts to delve into this fascinating and important subject.

Few other texts provide this information because traditional finance has focused on developing the tools that investors use to optimize expected return and risk. This endeavor has been fruitful, yielding tools such as asset pricing models, portfolio theories, and option pricing. Although investors should use these tools in their investment decision making, they typically do not. We tend not to use these tools because psychology affects our decisions more than financial theory does.

Unfortunately, your psychological biases inhibit your ability to make good investment decisions. By learning about your psychological biases, you can overcome them and increase your wealth. You will notice that most of the chapters are structured in a similar way. I first describe the psychological bias and illustrate it with everyday behavior (such as driving a car). The effect of the bias on investment decisions is then described. Lastly, I use academic studies to show that investors really do have the problem.

This material does not replace the investment texts of traditional finance. Understanding psychological biases complements the traditional finance tools. Indeed, after reading this book you should be convinced that traditional tools are valuable.

See all Editorial Reviews

Product Details

• Paperback: 95 pages
• Publisher: Prentice Hall; 1st edition (January 15, 2002)
• Language: English
• ISBN-10: 0130930245
• ISBN-13: 978-0130930248
• Product Dimensions: 10.9 x 5.8 x 0.3 inches
• Shipping Weight: 5.3 ounces
• Average Customer Review: 4.2 out of 5 stars  See all reviews (12 customer reviews)
• Amazon Best Sellers Rank: #903,214 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

31 of 33 people found the following review helpful:

5.0 out of 5 stars Great Book, January 23, 2003

By A Customer

This review is from: The Psychology of Investing (Paperback)

Most of the typical psychology of trading books just regurgitate the same 'ol same 'ol. This one hits all the bases with examples to back them up - and no fluff. I really appreciated how everything was condensed and to the point without having to read a lengthy discourse on each topic. That made it easy to digest the material and left me with a lot to think about. This was the best book I've read in it's class. Well worth reading.

14 of 14 people found the following review helpful:

5.0 out of 5 stars Good summary of how behavior affects investing decisions, May 29, 2005

By 

Anita (NY USA) - See all my reviews

This review is from: Psychology of Investing, The (2nd Edition) (Paperback)

This book contains a good summary of the different ways in which what we think affects investing decisions we make. I liked the fact that the book is short and to the point and does not use psychological jargon. I found it quite insightful and could identify with several of the traits and thought processes the book describes, I would recommend it to anyone who makes their own investment decisions

12 of 14 people found the following review helpful:

5.0 out of 5 stars A very good book that proves sometimes less is more., July 9, 2005

By 

H. P. Evans - See all my reviews
(REAL NAME)   

This review is from: Psychology of Investing, The (2nd Edition) (Paperback)

I really liked this book. Nofsinger makes a clear and concise case against the existence of a rational investing "homo economicus", a key assumption of modern portfolio theory. The book is well footnoted and a good place to start learning the underlying tenants of behavioral finance.