Investing and the Irrational Mind: Rethink Risk, Outwit Optimism, and Seize Opportunities Others Miss - Hardcover

KOPPEL

Hardcover

ISBN 10: 0071753370 ISBN 13: 9780071753371

Verlag: McGraw Hill, 2011

Inhaltsangabe

Make RATIONAL decisions in the IRRATIONAL world of investing

"Readers will find within these pages new truths that will help transform their thinking. This is more relevant than the latest strategies, trading systems, or technical chart formations."
--William J. Brodsky, Chairman and CEO, Chicago Board Options Exchange

"Koppel offers pioneering insights, backed by substantial research, that help explain how psychology influences financial decisions and drives markets. Investing and the Irrational Mind is a must-read for both the professional and nonprofessional investor."
--Robin Mesch, President, Mesch Capital Management

"If there is truth to the Yiddish proverb that 'man plans and God laughs,' read Investing and the Irrational Mind to gain an essential understanding of what to do with your stocks and bonds when God is cracking up. As the sages advised, 'All the rest is commentary.'"
--Yra Harris, CME Group member, President of Praxis Trading, and author of the daily investment blog Notes from the Underground

"Investing and the Irrational Mind explains the psychological barriers to making good investment decisions--and more importantly how to overcome them. Koppel shows the dangers of our own habit-driven behavior, biases, and heuristics and how they lead us to violate our own investment axioms."
--Alexander Abell, Director, BlackRock, Inc.

"Investing is fraught with uncertainty, which gives rise to psychological issues that investors ignore at their peril. Bob Koppel has written a fascinating, entertaining, and comprehensive examination of this multifaceted area of inquiry. If you invest for a living, or even if you're just a student of the psychology of self, you will find beneficial insights in the pages of this book."
--A. Thomas Shanks, President and CEO, Hawksbill Capital Management

About the Book

Most investors are driven by greed and panicked by fear, which is why so many lose so much during market upheavals. It's also why so few gain so much. What separates the winners from the losers? People who remain calm, focused, and analytical during market ups and downs always come out on top--and snatch the losses of those who panic.

Investing and the Irrational Mind gives you the tools for overcoming the self-destructive impulses that stand between you and profit. Behavioral finance expert Robert Koppel reveals why your brain sends certain negative messages during the investing process. Applying the latest advances in neuroeconomics and insights from top traders, he provides a program for building the habits used by the world's most successful investors.

Investing and the Irrational Mind teaches you how to:

• Identify negative, self-defeating patterns of thought
• Tailor your goals according to your particular investing psychology
• Develop a framework for overcoming irrational thoughts in investment decisions
• Use one of your most powerful investing tools--intuition

The investing world operates by the law of the jungle, with a new surprise lurking around every corner. How often have you abandoned a perfectly sound investing strategy because you panicked? "Success requires focused concentration that permits an unbiased perception of the market," writes Koppel. "All we can ever control is ourselves, but that is more than enough."

Armed with 30 years of experience as an analyst and fund manager, Koppel helps you develop a focused, disciplined, confident, and profitable approach to investing using the best tool at your disposal: your brain. Filled with surprising insights into human behavior and rock-solid financial advice, Investing and the Irrational Mind helps you draw consistent profits in an inconsistent investing world.

Über diesen Titel

Über die Autorin bzw. den Autor

Robert Koppel is a former member of the Chicago Mercantile Exchange (CME), a hedge fund partner, and president of his own division at Rand Financial. The author of numerous books on the psychology of trading, Koppel was the senior business writer for Onmoney.com. His work has appeared in the national financial press and been featured on CNN, CNBC, and NPR.

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INVESTING and the IRRATIONAL MIND

Rethink Risk, Outwit Optimism, and Seize Opportunities Others Miss

By ROBERT KOPPEL

The McGraw-Hill Companies, Inc.

Copyright © 2011 Robert Koppel
All rights reserved.

ISBN: 978-0-07-175337-1

Contents

Foreword
Preface
Acknowledgments
Introduction
1. A Concise History of Investor Psychology
2. The Inner Game
3. Hardwired and Irrational
4. A User's Guide to the Brain
5. The Market: It's a Jungle Out There
6. Things Fall Apart
7. Defining the Big Picture
8. Cognitive Biases
9. Fallacies
10. Illusions
11. Taking a Loss
12. Risky Business
13. The Power of Intuition
14. Adversity and Resilience
15. The Psychological Challenge
Notes
For Further reading
Index

Excerpt

CHAPTER 1

A Concise History of Investor Psychology

In May 2008, in an interview with the New York Times, Kenneth C.Griffin, president and CEO of the $20 billion Citadel Investment Group, aleading global financial institution, offered some pretty harsh words about WallStreet. His gripe was with the Street's prevailing psychology of reckless andexcessive risk taking. He called for an immediate overhaul of its mindset. Nostranger to placing big bets, Griffin knew what he was talking about. While anundergraduate at Harvard, he had started two hedge funds from his dorm room,installing a satellite dish to channel real-time market data so that he couldtrade between classes. Founded in November 1990 with a little over $4 million,Citadel is now the world's eleventh largest hedge fund, earning Griffin areported $900 million in 2009, after a double-digit drawdown in 2008.

Upset by the failure of Bear Stearns and the mistakes of big-name money managersand CEOs who assumed catastrophic risks that led to the evaporation of billionsfrom their balance sheets and whose actions eventually led to the disappearanceof Lehman Brothers and the near collapse of the financial system, he made anassessment that was blunt and to the point. "We, as an industry, dropped theball," he said. "We have a responsibility to manage risk in a way that isprudent."

Was Wall Street once again guilty of hubris? According to Griffin, the problemwas a market psychology that allowed for too much risk compounded by weakgovernment oversight. "When you read that UBS did not even view parts of itsmortgage portfolio as having risk," he said, "it becomes very obvious that anumber of firms were not dotting the i's and crossing the t's when it comes torisk management."

He also cited the additional problem of youth and inexperience. "Walk across anyof the trading floors—they are full of twenty-nine-year-old kids," heexplained. "The capital markets of America are controlled by a bunch of right-out-of-business school young guys who haven't really seen that much. You have areal lack of wisdom."

THE QUANTS

Wall Street Journal reporter Scott Patterson's electrifying portrait,The Quants, describes how a group of brilliant, gutsy traders, composedof math geniuses and physicists, first earned their chops through gambling, thenmoved to take on Wall Street. Accentuating the quirky intrigue of this group,Patterson details the personalities and temperaments of its characters. Itsprincipal figures included Citadel's Ken Griffin; chess master Boaz Weinstein ofDeutsche Bank; Peter Muller, manager of Morgan Stanley's secretive hedge fundProcess Driven Trading (PDT); Cliff Asness, the founder of the nearly $40billion fund AQR Capital Management; and Ed Thorp, an MIT-trained mathematicianand card shark, hedge fund manager, and author of Beat the Dealer, thefirst book to statistically prove that the house advantage in blackjack can beovercome by card counting.

This story opens not long ago in the Versailles Room, which is as posh as itsname suggests, in Fifth Avenue's storied St. Regis Hotel. Beneath a gildedceiling, antique floor-to-ceiling mirrors revealed the players, the quants,competing at Wall Street Poker Night. These yearly red-carpet events andtournaments, benefiting Math for America, brought together quants andprofessional poker players, surrounded by beautiful women, to play high-stakes,blue-chip poker. "The small group of wealthy and brilliant individuals ... had,through sheer brainpower and a healthy dose of daring, become the new tycoons ofWall Street," reports Patterson. "Few people outside the room had ever heardtheir names. And yet, behind the scenes, their decisions controlled the ebb andflow of billions of dollars coursing through the global financial system everyday." This was not Gordon Gekko's 1980s game of liar's poker.

More than anything else in the world, the quants were searching for their truth.For the quants, it was revealed in the obscure patterns of the market, whichcould be discovered only through mathematics. These young masters of theuniverse devised an appropriate name for it: alpha. Alpha, Patterson explains,is defined as a "code word for an elusive skill certain individuals are endowedwith that gives them the ability to consistently beat the market."

MARKET PSYCHOLOGY IN A NUTSHELL

The desire to beat the market is not a new idea, nor has it been limited toquants or to capital markets. When it comes to speculation, we are looking at adramatic history of booms and busts. Our minds are irrationally fueled by theprospects of quick enrichment through such things as tulips in Holland, gold inLouisiana, real estate in Florida, art, Internet stocks, and mortgage-backedsecurities. We are driven by greed. We are panicked by fear.

Combining psychology, economics, and neuroscience, the recent field ofneuroeconomics studies how people react in these emotionally exuberantsituations. Looking at the role of the brain, researchers examine how weevaluate investments, categorize risks and rewards, and interact with oneanother in our economic transactions. However, the story of our attempt tocomprehend the relationship between investing and the irrational mind beginsmuch earlier.

Since the inception of modern markets, investors have sought to understand thefactors that assured profit and prevented individuals from getting caught up ina psychological ricochet between euphoria and depression. One of the firstattempts was made by Dickson G. Watts, president of the New York Cotton Exchangefrom 1878 to 1880, a great arena of economic activity in America. InSpeculation as a Fine Art and Thoughts on Life, in his list of essentialqualities of the speculator, Watts wrote, "Those who make for themselves aninfallible plan delude themselves and others."

Watts identified five qualities that he believed were key for success: self-reliance, judgment, courage, prudence, and pliability. Summing up, he wrote,"The qualifications named are necessary to the makeup of a speculator, but theymust be in well-balanced combination. A deficiency or an overplus of one qualitywill destroy the effectiveness of all. The possession of such faculties, in aproper adjustment is, of course, uncommon. In speculation, as in...

Details zur Ausgabe

• Verlag: McGraw Hill
• Erscheinungsdatum: 2011
• Sprache: Englisch
• ISBN 10: 0071753370
• ISBN 13: 9780071753371
• Einband: Gebundene Ausgabe
• Anzahl der Seiten: 319
• Kontakt zum Hersteller: Nicht verfügbar
• Verantwortliche Person: gpsr@libri.de; gpsr@libri.de; ; Europaallee 1; Bad Hersfeld; 36244; Deutschland