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

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

Robert Koppel

Language: English

Pages: 214

ISBN: 0071753370

Format: PDF / Kindle (mobi) / ePub

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

"<i>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."</i>
--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.











for excessive risk in the hedge fund industry. The fund closed its doors in 2000. Although it was enormously successful in its early years, with annualized returns of over 40 percent, the spectacular breakdown of LTCM’s statistical models resulted in its untimely demise. It was the context of LTCM’s failure and the markets’ general return to business as usual that explains Krugman’s comment, “My guess is that the myth of the rational market—a myth that is beautiful, comforting and, above all,

into the heuristics and biases research program, which has had a far-reaching influence beyond the discipline of psychology. It was a major factor in the development of behavioral economics and earned Kahneman the Nobel Prize in 2002. DEVIATIONS OF JUDGMENT My intention here is not to list all the biases to which humans are prone, but to describe those deviations of judgment that I have experienced and have observed in the behavior of other traders and institutional clients. In my market

Department of Psychology. Pronin explained to subjects the better-than-average effect, the self-serving bias, and many other cognitive biases. As described earlier, according to the better-than-average bias, specifically, people tend to see themselves inaccurately as “better than average” for positive traits and as “less than average” for negative traits. When Pronin subsequently asked subjects how biased they themselves were, they rated themselves as being much less subject to the biases that

destroy the effectiveness of all. The possession of such faculties, in a proper adjustment is, of course, uncommon. In speculation, as in life, few succeed, many fail.” It was a good early attempt to understand a near chaotic speculative environment, one that relied heavily on nineteenth-century moralistic teachings and everyday common sense. THE BOY PLUNGER These observations won Watts the attention of young Jesse Livermore, who learned a lot about markets and himself from the slim

the trading floor and who now runs an advisory service that concentrates on equities and Treasury bonds for hedge funds and professional traders, said, I’ve found over the years that the best remedy for a cold streak is to take a break. For me it was sailing competitively. The concentration required to pick wind shifts, anticipate, react, and plan strategy was a total meditation that released my mind from all other thoughts. This allowed me to go back to trading with a fresh, uncluttered mind.

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