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Identifies the widespread investment mistakes that are costing you money right now. Author shows you how to recognize overconfidence and greed in your decision making, avoid throwing good money after bad, and ensure that you have clear goals matched by a clear strategy.
- Sales Rank: #5118390 in Books
- Published on: 2002-06-15
- Original language: English
- Number of items: 1
- Dimensions: 9.50" h x 1.10" w x 6.20" l,
- Binding: Hardcover
- 336 pages
From the Back Cover
We're all human—especially when we're investing. And that goes for the "big guys," too. Dispassionate economic theories say nothing about the emotional decisions we make—or the financial disasters they can cause.
In Investment Blunders of the Rich and Famous ... and What You Can Learn from Them, one of the world's leading experts on investor psychology deconstructs spectacular failures from the world's most prominent investors. They ought to have known better. But they didn't. They let overconfidence, hubris, greed, or shortsightedness get the best of them.
Chances are, you're making some of the same mistakes right now.
Overconfidence and the Long-Term Capital Management hedge fund They were Nobel laureates. They thought they'd found a sure thing. They hadn't. The Motley Fool and the Foolish Four They were tricked by trends. You can be too. Don't throw good money after bad: what Baring's forgot It doesn't take long for "double-or-nothing" bets to bankrupt you. The prophets: analysts, newsletters, and economists Why expert opinion doesn't make you money. Avoid the pension blunder that forces you to work longer The fate of Enron employees has befallen others and could happen to you. Fidelity couldn't time the market—neither can you How the world's best stock fund missed the world's best market. Know your investments: lessons from the bankruptcy of Orange County, CA If you can't understand it, don't invest in it."Full of common sense and sophisticated knowledge, John Nofsinger's Investment Blunders provides individual and professional investors with one of the greatest tips of all time: boost your returns by avoiding mistakes. Trying to remove greed, hubris, moodiness, poor information, and peer pressure from the investment process, Investment Blunders reminds us that our best trades are often those that we don't do."—Peter Marber, Columbia University,
and author of From Third World to World Class: The Future of Emerging Markets in the Global Economy
—Morgen Witzel,
editor in chief, Corporate Finance Review
Lessons from the spectacular failures of the world's most prominent investors!
All investors are subject to the foibles of human psychology. Using other people's disasters as juicy examples, Investment Blunders identifies the widespread investment mistakes that are costing you money right now.
John R. Nofsinger shows you how to recognize overconfidence and greed in your decision making, avoid throwing good money after bad, and ensure that you have clear goals matched by a clear strategy. You'll learn why it's critical to avoid temptations like market timing, why diversification is even more important than you realize, and why you can't rely on others to understand your investments for you.
Enron proves yet again that even the "smartest" financial sharpshooters can go disastrously awry. But you don't have to. All you need is a little humility, a little objectivity, and a copy of Investment Blunders.
About the Author
JOHN R. NOFSINGER is a finance professor, Department of Finance, Insurance, and Real Estate at Washington State University and one of the world's leading experts in investor psychology and behavioral finance.
Written with Richard W. Sias, Nofsinger's 1997 paper "Herding and Feedback Trading by Institutional Investors" was awarded "Best of the Best" and "Best Paper in Investments" by the Financial Management Association. He has also done advanced research for the New York Stock Exchange and the Association for Investment Management and Research.
He has been interviewed and quoted in financial media including The Wall Street Journal, Fortune, BusinessWeek, SmartMoney, Bloomberg, and the cable news network CNBC, as well as other media from the Washington Post to Wired.com.
Nofsinger holds a Ph.D. in Finance from Washington State University and taught for five years at Marquette University. His Financial Times Prentice Hall books include Investment Madness: How Psychology Affects Your Investing...and What to Do About It and The Psychology of Investing.
Excerpt. � Reprinted by permission. All rights reserved.
Preface
How can I become a better investor?
This one question is the source of an entire financial advice industry. Magazines, newspapers, books, TV shows, radio shows, and Internet sites are dedicated to the topic. With all this advice, why aren't we better investors?
Many of these sources of advice manipulate our hopes, dreams, and fears in order to get us to pay attention to their show or buy their magazine. It works. We are often drawn to bad advice simply because it is packaged in an exciting way. I have known financial advisors who were terrible at investing, but had many clients because they had a lot of flash and were great marketers. I have also known financial advisors very good at investing whose client base grew slowly because they didn't play on prospective clients' emotions. There is a lot of good advice out there, but it is not always from the sources that draw our attention.
Indeed, the investment industry plays to our emotions as well. Mutual funds focus their advertising on high recent returns. Investment newsletter writers use fear and hope to sell subscriptions. Investment authors offer the way to easy money. It is no wonder that investors develop misconceptions and form bad habits.
I wrote this book to help investors understand the sources of the mistakes they are being led into. Many mistakes are made that have only minor influences on wealth. However, occasionally an investor will fall into a major investment blunder that will seriously affect their life for many years. By reading this book, you should be able to avoid experiencing that blunder (or another one!). As you read the book, you may find that some of the advice you have received is bad. If that is the case, then you may have read this book just in time to avoid your own blunder.
The chapters in this book are grouped into three parts. The first part details many of the problems that investors commonly inflict on themselves. The topic of money (especially losing it!) can bring out strong emotions in people. These emotions can lead to poor choices and further financial problems. In addition, the way the human brain functions frequently leads investors to conclusions that are simply wrong. For example, people think they see patterns and trends in stock prices that are really random, or chaotic. These chapters discuss these emotions and the tricks of the mind. In addition, they illustrate the problems and foolish risks they lead you into.
Many investors turn to investment professionals to get advice on which stocks to buy and when to buy them. There are many analysts, economists, advisers, and other experts who are willing to sell advice. This advice can come to you in the media, through newsletters, or over the Internet. If you are paying for this advice then you had better read Chapter 5, "Profits from the Prophets?" which examines whether you can make profits from these prophets.
The second part of the book describes many of the problems investors face because of the drive to do better than everyone else. Even if you do not feel the need to get the best return, you probably want to at least beat the market (and many of your friends and colleagues). The focus on beating the market causes investors to do things that are harmful to their wealth. Investors try to second-guess the market by timing it. Investors also chase the mutual funds with the top performance over the past month, quarter, or year. The desire to make more money than your neighbor makes you vulnerable to the "get rich quick" scheme. These schemes are named after your desire, not your outcome, because nobody gets rich.
The third part of the book shows that the professionals can make enormous blunders too. They suffer from the same human weaknesses as the rest of us. Even very smart people can blow it. Read the fascinating tales of how respected traders, Nobel Prize Laureates in economics, portfolio managers, and others lost billion of dollars. Read about billions in losses that nearly crashed the world financial system, or losses that bankrupted one of the richest counties in California. Learn of rogue traders that bet the bank on their trades—and lost. While the book describes investment blunders of all types, these dramatic blunders boggle the mind.
How can you avoid making a blunder with your own money while also meeting your investment goals? The last chapter of this book relates a process and strategy for overcoming these problems. It details a disciplined approach to investing that will lead you to your financial goals.
Most helpful customer reviews
4 of 6 people found the following review helpful.
Didn't even attempt to stick to the title
By Rick Spell
Investment Blunders of the Rich and Famous? A great title for a book that enticed this sucker to buy it. But really the book is nothing but a general examination of investment theory. Let me save you the purchase of the book. You can't beat the market and studies prove if you try you will waste too much money in brokerage comissions. How depressing!!!
And who are these rich and famous? They are nowhere to be found. He does have a chapter of famous losers like Nick Leeson who broke an English bank and Robert Citron who bankrupted Orange County California. But that is as close as you get to this misleading title.
About the only positive I found in this book was an in-depth study of investor's behavioral patterns. Overall, I'd recommend you pass on this book.
4 of 4 people found the following review helpful.
Find a Better Book to Read on Stock Investing
By Donald Mitchell
This book is one of the most peculiar I have ever read in terms of handling its subject. The book's title subject isn't directly addressed until chapters 12-14, and then doesn't provide anything you couldn't read about in a more detailed and interesting way somewhere else. It's as though the publisher's marketing department tried to create a title to make the book into something that it really isn't.
Then, all of the proactive advice is saved for chapter 15. That material is about as developed as a magazine article. You need to have specific financial goals, determine a reasonable investment rate of return to seek (in light of your age and goals), make appropriate asset allocations, and then find cheap ways to implement your approach (such as with index funds and exchange traded funds).
The material in the earlier chapters is entertaining, and generally well done (and properly referenced) but it just doesn't fit well into a book to teach you how to invest. It's like a series of interesting factoids, without connecting the dots very well. Any of John Bogle's books would do you more good in terms of understanding these same issues when it comes to your investing. A new book, A Mathematician Plays the Market, is also a superior story to this one.
It's very hard to scale up article-sized bits of knowledge into a book. I recommend that Professor Nofsinger find a co-author for a future edition to help him better string together his story. His knowledge level seems good, and he would seem to be capable of producing a much better book in the future. I hope he does.
3 of 4 people found the following review helpful.
Wasted my time
By CFA
I wish I had read raspell's review before I bought the book. Now I've given up in frustration after 6 chapters, or about one-third through. As raspell pointed out, not one investment blunder by anyone rich OR famous was mentioned in the first third of the book.
Not only that, it is peppered with generalisms which the author makes little attempt to explain, and which in any case sound fishy to me. Like this one: you are only rewarded for taking market risk, not stock-specific risk, hence there is no point taking stock-specific risk. If I remember my rational economics, all risk must be rewarded, otherwise no one will take them.
Finally, it contains dangerous analytical flaws, which can lead to bad investment decisions. For example, it asserts wrongly that it is illogical if a stock's market capitalisation is less than the value of an asset it owns. This totally ignores the question of how the asset is funded. If a company owns nothing but an asset worth $1b, funded by loans worth $1b, is the company worth $1b?
I would seriously not recommend this book to anyone.
PS. I have since gone on to read Chapters 12-14, which deal with the blunders of five big-time traders. Three chapters out of 15 - that's a poor execution of the title, I'm afraid. I can get more from an hour or two on the net.
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