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Behavioral Finance and Wealth Management: How to Build Optimal Portfolios That Account for Investor Biases Hardcover – January 3, 2012

3.7 out of 5 stars 3 customer reviews

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Editorial Reviews

From the Inside Flap

Behavioral Finance and Wealth Management

How to Build Investment Strategies That Account for Investor Biases

Since the first edition of Behavioral Finance and Wealth Management was published—in the wake of the bursting of the technology bubble in 2000—the world faced yet another economic crisis in 2008. Accompanying this crisis is a new level of market volatility, and both investors and advisors can benefit from a deeper understanding of behavioral finance and how it can help them achieve their long-term financial goals. That's why author Michael Pompian, a wealth manager and practitioner at the forefront of the practical application of behavioral finance, has written the second edition of this book.

As an investment advisor, Pompian understands the behavioral biases that investors have. He has discovered specific ways to adjust investment strategies for these biases and in the Second Edition of Behavioral Finance and Wealth Management, Pompian helps investors and their advisors develop a heightened awareness of these biases so that financial decisions, and resulting economic outcomes, can be improved.

Divided into six comprehensive parts, this reliable guide opens with an introduction to the basics of behavioral finance, focusing on the aspects most relevant to individual wealth management. From here, Parts Two (Belief Perseverance Biases), Three (Information Processing Biases), and Four (Emotional Biases) define and illustrate a total of twenty of the most important biases—within the cognitive-emotional framework—for considering potential biases. For each of the twenty biases, Pompian uses the same basic format in discussing the bias, in order to promote greater accessibility.

After covering the foundations of behavioral finance, the biases, Part Five turns to the main focus of this book: practical application of behavioral finance for investors and advisors. This section establishes a basic framework for integrating behavioral finance insights into portfolio structure and presents the concept of best practical allocation. It then takes the concepts presented and applies them in a case study format to reinforce learning.

Rounding out this detailed discussion, Part Six ties together many of the concepts covered in the book and introduces a new concept Pompian has developed to make behavioral finance easier to apply in practice. The idea of Behavioral Investor Types (BITs) is introduced along with the investment biases that are associated with each one.

Updated to reflect current market conditions, this reliable resource skillfully illustrates investors' behavioral biases in detail and offers financial advisors and their clients practical advice about how to apply the science of behavioral finance to improve overall investment decision making.

From the Back Cover

Praise for the first edition of Behavioral Finance and Wealth Management

"Pompian is handing you the magic book, the one that reveals your behavioral flaws and shows you how to avoid them. The tricks to success are here. Read and do not stop until you are one of very few magicians." —Arnold S. Wood, President and Chief Executive Officer, Martingale Asset Management

"I wish this book had been available a decade ago; by understanding behavioral biases, clients and professionals can stay focused and comfortable throughout the markets' bubbles and doldrums. Michael Pompian moves our profession forward by proposing a standardized structure for this approach." —Elizabeth K. Miller, CFA, Managing Director, Trevor Stewart Burton & Jacobsen Inc., and former chair, New York Society of Security Analysts' Wealth Management Committee

"Many inefficiencies in the market are the result of how investors let their emotions dictate their investment decisions. Michael Pompian's work provides a framework to understand why these inefficiencies exist, and how they can provide investors with significant profit-making opportunities." —Stanley G. Lee, CFA, Principal, David J. Greene & Company, LLC

"Michael Pompian has created a valuable resource for investors and those in the wealth management community by not only explaining a number of important behavioral biases, but also giving them actionable steps to reduce biases and improve investment performance." —John M. Longo, PhD, CFA, Senior Vice President, Investment Strategy, The MDE Group, Inc., and Adjunct Professor of Finance, Rutgers University Graduate School of Management

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Product Details

  • Hardcover: 352 pages
  • Publisher: Wiley; 2 edition (January 3, 2012)
  • Language: English
  • ISBN-10: 1118014324
  • ISBN-13: 978-1118014325
  • Product Dimensions: 6.3 x 1.1 x 9.3 inches
  • Shipping Weight: 1.2 pounds (View shipping rates and policies)
  • Average Customer Review: 3.7 out of 5 stars  See all reviews (3 customer reviews)
  • Amazon Best Sellers Rank: #185,450 in Books (See Top 100 in Books)

Customer Reviews

Top Customer Reviews

By Michael Vanbuskirk on December 14, 2014
Format: Hardcover
I struggled with this read. The book mostly does an okay job in describing experiments of others involving hard-wired inclinations that unconsciously affect the way humans look at the world, including the world of investments. However, too often there are some points showing bad logic and others that are poorly described.

For instance, the author mentions tests to show risk tolerance in individuals that had questions like: give a range for how far you think the moon is from the earth so that you feel your answer has a 95% chance of being correct. Whether a wide range or narrow one is is supposed to suggest something. But, some folks like myself know how far the moon is from earth (it's a range itself) so the answer would not measure anything in my case. Same question for the weight of a sperm whale, etc. There were a number of troubling things where the reader was left thinking "really?" but the work did not anticipate these reactions or see the problems and so did not address them.

The chapter on confirmation bias describes an experiment with 4 cards which I read 4 or 5 times but did not understand it. for a bit I tried to figure out what information had been left out, but gave up. Was this book proof read for content?

Lots of good information but not consistently described, synthesized or illustrated very well.
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Format: Hardcover Verified Purchase
Interesting and useful
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very good for me, I used it to advance my own understanding of behavioral aspects involved in my own investing.
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