on November 13, 2010
A terrific book by one of the founders of the field of behavioral finance! I have read many of Meir's research articles, and I thought that "What Investors Really Want" (WIRW) would be a presentation for the masses of the ideas and history of behavioral finance. But it is much more. There is a perspective here that transcends the academic research in the area, and provides a fresh, humorous, and engaging view of how our portfolios are more than just utilitarian objects, but that they have vast expressive and emotional roles in our lives. So this book is not just about investing and behavior, but about how the biases we portray in investing also pervade many other aspects of our lives. We may be better at managing biases in other areas of life, and may be worse at it with our portfolios. Or vice-versa, and Meir's research-driven portrayal of how our portfolios satisfy our many needs is a splendid primer on life! Far from being only a book for the masses, WIRW is thoroughly referenced, and I am sure that PhD students looking for a comprehensive reading on Behavioral Finance will get a deeply informed perspective. I found the bibliography in the book to be the most detailed one for the field---it is an added bonus. Most of all, I could not stop smiling as Meir poked fun at me (and all of us of the homo-miseconomicus tribe) as he explains what we really want as opposed to what we think we want.
on December 31, 2010
Prof. Statman's book seamlessly combines investing, finance, behavioral and real life lessons, and the book is both educational and entertaining to read. It reminds us that investing is more than money and we should expect the benefits to be more than financial (utilitarian). It dispels some old illusions such as "we should use reason, not emotions, when we make investment decisions." He indicates that even though emotions complement reason more often than they interfere with it, the interaction between emotions and reason is mostly beneficial.
It is also sobering to know that being a retail trader is like playing tennis against an unknown professional player who holds both superior knowledge and better equipment/techniques.
Prof. Statman's research on the key role of financial advisors is very enlightening. Financial advisors main job is to manage investors financial well-being rather than manage just their investments.
Prof. Statman's research also shows why so many retail and institutional investors share the same cognitive errors that cause them to make poor investment decisions. His research strongly encourages investors to invest in well diversified portfolios and keep emotions at bay by not hanging onto losers due to emotional attachment. He says that wanting to get even (get our money back) has probably caused more destruction on investment portfolios than anything else. Reluctance to realize losses is also great news for managers of terrible mutual funds.
And he tells us about cognitive impairments among older people and the problems associated with such mental decline. This is very important to be aware of and be prepared for regardless of your age.
In summary, this book is multi-dimensional and extremely well researched and well written. Investing your money and your time in this book should pay handsome dividends in your life.
on March 5, 2011
Those deconstructing the Great Recession from the standpoint of "how did we get here?" in service of the aim of avoiding a repeat have astutely honed in on the role of flawed decision-making on the part of consumers in at least partially causing the crisis.
From buying too much house, too soon, with too little down and on screwy loan terms, to floating an unaffordable household lifestyle on credit cards, poor decision-making can -- and indeed has -- made and broken our household finances and our national economy.
As with weight loss, I've found that with personal finances, people tend to know what they should be doing, but often find their decisions and actions to be in opposition with these shoulds.
In an effort to both illuminate why people do the financial things they do -- especially the "bad" things -- and help us all make better financial decisions going forward, behavioral economist and finance professor Meir Statman has written "What Investors Really Want: Discover What Drives Investor Behavior and Make Smarter Financial Decisions."
In doing so, Statman has crafted an intelligent, nuanced, educational and possibly life-changing book for those who considers themselves a student of personal finance or, well, themselves and why they do the things they do.
These insights are particularly tailored in this book to understanding our behavior in the realm of money matters, but they certainly hold promise for human behavior in the financially tangential areas of our lives, ranging from how we interact with our families to how we care for ourselves (or fail to do so, as the case may be).
The book is organized from very basic premises, each chapter explicating one foundational statement of what investors (for which you could accurately substitute consumers, or human beings, for that matter) want, need, think or feel, in terms of motivations for their financial decisions and behavior.
These chapter subjects/premises are so basic as to seem borderline obvious, but Statman uses each one as a springboard to a detailed, interesting, data-backed, yet not overly academic exploration of each topic.
Each of these chapters masterfully interweaves narrative stories (about everyone from the former owners of the $100 million lost to Nigerian e-mail scams every year, to Bernie Madoff, Leona Helmsley, Bill Gates and Meg Whitman) with the results of scientific studies into the fallacies, feelings and flawed approaches that threaten to foul up even the smartest investors' finances.
Statman reviews our basest human desires with a financial slant. He declares, then documents, that "we want profits higher than risks," which causes us to fall for too-good-to-be-true investments and/or scams.
Our thoughts and emotions also drive our investment decision-making, but because they are often erroneous and misleading, can also drive us down the path to investment perdition. The desire to play and win the game (i.e., by scoring investments that are much more profitable than they are risky) makes us feel alive, but also sets us up for failure.
Statman explains that our hard-earned money is spent less easily than our windfalls, but that we still struggle with finding the self-control that gives rise to the appropriate balance between spending and saving.
Most of us, according to Statman, crave to be rich, to have high status and respect, to live in alignment with our values and to live in a world that is basically fair. We want better lives for our kids, and we seek out "information, protection, and advice from financial advisers, the Internet, the government, and other investors."
On the other hand, we will do almost anything to avoid poverty, losses and taxes. Statman also explores the roles our "personalities, life experiences, and cultures" play in locating us each individually on the spectrum between hope and fear.
This book is delightful. Read it, and you will learn many, many things you didn't know before about how your thoughts, feelings, and basic wants and needs may be waylaying you on your pursuit of prosperity. And you will be entertained the entire way through in a smart-funny, and occasionally ha-ha funny, way.
Once you're done, forever after, you won't be able to think fallacious financial thoughts or make avoidable money mistakes without thinking back to the anecdotes, examples and studies cited by Statman throughout "What Investors Really Want."
If everyone reads this book, we might avoid another decision-precipitated recession. Everyone won't, but you should; that way you can at least optimize the financial decisions that get made in your own household.
(C)Tara-Nicholle Nelson, 2011
First published/syndicated via Inman News
Reprinted with permission
on December 4, 2010
I love Meir's work in the area of Behavioral Finance.
As an advisor of over 25 years, I cringe when I hear the question, "do you have any hot tips about where to put my money?" His title "What Investors Really Want" says it all. It is my job to help them explore what it is they really want, and Meir's book will greatly add to the strong foundation that has already been laid by his teaching.
As Meir shows, there is academic proof that there is a better way, and that it is our emotional investing that gets us in trouble.
As Meir states often, "investors are not rational, they are normal."
For a deeper understanding of the behavior and the science and how they can work together for successful investing, read Meir's book.
on February 17, 2012
What Investors Really Want is accessible and entertaining. While some of Statman's observations may seem to be obvious, common sense observations, others may be less apparent. Investors who are generally "utilitarian" (primarily seeking financial benefits) may not be as consciously aware of "expressive" and "emotional" objectives (such as status and respect) which may influence choices. Investors can be subjective in how they view the performance of their selected investments and can have unrealistic hopes and fears. Probably of greater interest than a discussion of specific investment vehicles is the discussion of the human, psychological elements which can (always?) influence decisions. It is a discussion worth having, and Statman's presentation has more of a dinner table discussion quality than that of a textbook, yet he includes abundant examples, studies and footnotes.
One topic that seems too simplistically covered is how investors view real losses versus paper losses. Statman essentially states that a loss is a loss. But an investor is not necessarily in denial if a share price drops and the investor does not think of it as a loss except on paper. The investor still owns the same number of shares and may be purchasing more shares at a discounted price with reinvested dividends. This type of "loss" could ultimately be of great benefit. It seems that Statman's view is focused on the short term in this regard.
Over all, a very good presentation.