Beyond Greed and Fear: Finance and the Psychology of Investing
by Hersh Shefrin
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List Price: $39.95
Our Price: $26.97
Your Save: $ 12.98 ( 32% )
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Manufacturer: Oxford University Press, USA
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Average Customer Rating:   
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Binding: Hardcover
Dewey Decimal Number: 332.6019
EAN: 9780875848723
ISBN: 0875848729
Label: Oxford University Press, USA
Number Of Items: 1
Number Of Pages: 384
Publication Date: 2000-01-15
Publisher: Oxford University Press, USA
Studio: Oxford University Press, USA
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Spotlight customer reviews:
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Customer Rating:
Summary: Book is OK
Comment: I am currently enrolled in a masters program in International Business majoring in Finance (University Maastricht, The Netherlands (www.unimaas.nl) . For a course on behavioral finance, I had to use this book as a reference. Though it is not quiet a hard core finance book, it is useful to learn about real life examples from the corporate field and to see the contradictions with overall acknowledged assumptions on investors behavior and real life results.
The book is easy and fast to read and hold lots of examples. It is a perfect book for people interested in finance, but I doubt the academic use of it (no offense to both the author and my course coordinator).
Customer Rating:
Summary: Look to market experts for success
Comment: So long as market investors are human beings rather than machines, market participants will be governed by emotion. The efficient market theory, as Warren Buffett states, works most of the time. But when unusual or exceptional news comes into play, a stock (and/or markets) nearly always overreacts.
The best book I have found on investing is "The Intelligent Investor". There is a clear picture of what works and does not work in investing, and why. There is a fair amount of analysis of the behavior of market participants.
Warren Buffett asserts that he doesn't have much use for what is taught in a typical college business class. As he points out, if professors understand stocks and markets so well, why are so few of them wealthy? People like Ben Graham, Buffett and Peter Lynch are not 'lucky'. They read a great deal, they have keen insight into what makes a stock go up and they are unafraid to buy when prices are low if prospects look good. I would prefer to emulate those who are truly successful rather than those who postulate about what may work.
Customer Rating:
Summary: Selective Presentation of the Evidence
Comment: I am a behavioral economist with a deep belief in the notion that human decision-makers deviate in important ways from the scientific principles laid down in modern rational choice theory. There is no doubt but that very many investors hold erroneous notions of the dynamics of price movements, and having a correct understanding will, on average lead to better returns on one's portfolio. Sheffrin presents the evidence for this position in an interesting and accessible manner.
Shefrin's main advice for investors is absolutely correct, and would improve the asset positions of many poor souls with idiotic notions of stock dynamics. His advice is that if you are not a gifted and dedicated stock expert, you should invest in a low-maintenance cost array of mutual funds, and above all, do not churn your stocks. It doesn't help to be smart, lucky, a stud with the girls, or blessed by God. Moreover, if you think you have one of the "gifted analysts" for a broker, you are to be counted as among the suckers who are never given an even break.
Shefrin has another thesis which he presents with great verve, but which is on very shakey grounds. This is that "gifted stock analysts" can on average, significantly out-perform the market. He believes this MUST be the case if a significant fraction of investors are behaving irrationality. However, there is another possibility, which is that stock brokers as a group gain from the excessive churning that irrational investors permit or ask them to do, but that it is impossible to "beat the market" except by pure luck or by personally studying firm fundamentals and future prospects.
Shefrin's data in favor of the "gifted analyst" is episodic and anecdotal, and there is plenty of data on the other side. For instance, in Malkiel's classic "Random Walk Down Wall Street", he relates the evidence that chimps throwing darts do as well as major brokerage houses. Sheffrin presents contrary evidence for a more recent period in which "gifted experts" outperform the random darts. New evidence, collected by Money magazine, shows that a group of experts did far worse than the darts in 2003. All of this evidence is spotty and anecdotal. The plural of anecdote is not data.
I am not convinced by this book that the efficient markets hypothesis, applied to final returns to investors (after payments to stock brokers and other transactions costs), is not correct. I think the author makes a mistake taking so strong a position when the evidence is so weak on this account. I am certainly not convinced that Malkiel's analysis is in any way overturned by new evidence.
However, if Shefrin convinces a few investors to act more sanely, he will have fulfilled an important social function.
Customer Rating:
Summary: Packed with Knowledge !
Comment: If only you could bring yourself to ditch those losers from your portfolio, and hang onto your winners. If you can, you are unusual. Unprofitable habits afflict nearly all investors, beginners and pros alike, writes Hersh Shefrin in this intriguing study of the role of emotions in investing. Shefrin balances the jargon with plenty of real-world examples and wisely cautions you not to delude yourself into thinking that his tips will make you rich. Viewing investing through the prism of behavior finance, he analyzes emotionally-laden decisions made by private investors, money managers, bankers and other professionals handling stocks and various other forms of investments including options, foreign currency and futures. Shefrin offers juicy case histories, so his tour of behavioral finance is mostly enjoyable and useful. At times, though, the book bogs down in the author's attempts to legitimize behavior finance, a relatively new school of thought. For instance, he charges failed investors with committing "heuristic bias" or falling prey to "representativeness." That quibble aside, we recommend this intriguing tome to investment decision makers on any level. Whether you are running billions or managing a retirement account (which, as Shefrin notes, most people do badly), maybe this book will buffer you against emotional investing and pocketbook pain.
Customer Rating:
Summary: Comprehensive, Entertaining Overview of Fascinating Field
Comment: Wondering what Brealy & Myers or Sharpe left out? Don't expect your broker (or fund manager, excepting Richard Thaler) to fill you in. This book is a must read for any active (or passive) participant in the markets, or any other citizen who is affected by said markets. Meaning all of us.
Shefrin provides a masterful exposition of the application of cutting-edge cognitive psychology to the behavior of retail and institutional investors, analysts, mutual fund managers, CEO's and even heavily-advised university investment committees. The result is the theoretical demolition of the efficient markets hypothesis in even its weakest form, and the related CAPM(s), catching up to their long-noted empirical failings. As it turns out the market does have a memory, and that's not just an anomaly any more. Not every trade is zero-NPV: trust the market price at your own peril. Think dividends are irrelevant? Think again.
What we're left with is a fascinating account of how market participants actually behave: holding on to losers too long, trading too much and trading on "noise," and most alarmingly, undersaving for retirement. What is significant is that these phenomena are so prevalent that they can no longer be dismissed as irrational with the hope that "more sophisticated" money will magically correct the market. To the contrary, what Shefrin describes is proved to be the psychological norm; if you believe you're different, you're either very lucky or overconfident about your lack of overconfidence.
One quibble, in an area that I have looked at before, is in Shefrin's discussion of takeovers. First, I found a bit of confusion between the question of whether the takeover premium should be tested by reference to the post-announcement combined value of both firms, or just the buyer. Since the buyer's CEO is initially fiduciary for just his shareholders, I see only the latter as relevant.
More significantly, Shefrin does not provide any means to rigorously discriminate among his hubris hypothesis and other, more rationalistic theories, such as agency costs and private benefits. And his brief treatment omits many puzzling follow-up questions: if CEO psychology has the potential to systematically destroy shareholder wealth, what should we then conclude about the investors and analysts who allow them to get away with it? Just a governance problem, or is there yet another psychological story to be told?
But the desire to delve further into the subject is just indicative of Shefrin's compelling and readable narrative. For bottom line types, I'm afraid the answer to your question is no, he doesn't explain how to get rich. But you'll surely do alot better with a single yellowing copy of Graham & Dodd than all the reams of abstruse, dogmatic journal articles ever spewed by the Chicago School.
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Editorial Reviews:
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Customer Rating:
Summary: Book is OK
Comment: I am currently enrolled in a masters program in International Business majoring in Finance (University Maastricht, The Netherlands (www.unimaas.nl) . For a course on behavioral finance, I had to use this book as a reference. Though it is not quiet a hard core finance book, it is useful to learn about real life examples from the corporate field and to see the contradictions with overall acknowledged assumptions on investors behavior and real life results.
The book is easy and fast to read and hold lots of examples. It is a perfect book for people interested in finance, but I doubt the academic use of it (no offense to both the author and my course coordinator).
Customer Rating:
Summary: Look to market experts for success
Comment: So long as market investors are human beings rather than machines, market participants will be governed by emotion. The efficient market theory, as Warren Buffett states, works most of the time. But when unusual or exceptional news comes into play, a stock (and/or markets) nearly always overreacts.
The best book I have found on investing is "The Intelligent Investor". There is a clear picture of what works and does not work in investing, and why. There is a fair amount of analysis of the behavior of market participants.
Warren Buffett asserts that he doesn't have much use for what is taught in a typical college business class. As he points out, if professors understand stocks and markets so well, why are so few of them wealthy? People like Ben Graham, Buffett and Peter Lynch are not 'lucky'. They read a great deal, they have keen insight into what makes a stock go up and they are unafraid to buy when prices are low if prospects look good. I would prefer to emulate those who are truly successful rather than those who postulate about what may work.
Customer Rating:
Summary: Selective Presentation of the Evidence
Comment: I am a behavioral economist with a deep belief in the notion that human decision-makers deviate in important ways from the scientific principles laid down in modern rational choice theory. There is no doubt but that very many investors hold erroneous notions of the dynamics of price movements, and having a correct understanding will, on average lead to better returns on one's portfolio. Sheffrin presents the evidence for this position in an interesting and accessible manner.
Shefrin's main advice for investors is absolutely correct, and would improve the asset positions of many poor souls with idiotic notions of stock dynamics. His advice is that if you are not a gifted and dedicated stock expert, you should invest in a low-maintenance cost array of mutual funds, and above all, do not churn your stocks. It doesn't help to be smart, lucky, a stud with the girls, or blessed by God. Moreover, if you think you have one of the "gifted analysts" for a broker, you are to be counted as among the suckers who are never given an even break.
Shefrin has another thesis which he presents with great verve, but which is on very shakey grounds. This is that "gifted stock analysts" can on average, significantly out-perform the market. He believes this MUST be the case if a significant fraction of investors are behaving irrationality. However, there is another possibility, which is that stock brokers as a group gain from the excessive churning that irrational investors permit or ask them to do, but that it is impossible to "beat the market" except by pure luck or by personally studying firm fundamentals and future prospects.
Shefrin's data in favor of the "gifted analyst" is episodic and anecdotal, and there is plenty of data on the other side. For instance, in Malkiel's classic "Random Walk Down Wall Street", he relates the evidence that chimps throwing darts do as well as major brokerage houses. Sheffrin presents contrary evidence for a more recent period in which "gifted experts" outperform the random darts. New evidence, collected by Money magazine, shows that a group of experts did far worse than the darts in 2003. All of this evidence is spotty and anecdotal. The plural of anecdote is not data.
I am not convinced by this book that the efficient markets hypothesis, applied to final returns to investors (after payments to stock brokers and other transactions costs), is not correct. I think the author makes a mistake taking so strong a position when the evidence is so weak on this account. I am certainly not convinced that Malkiel's analysis is in any way overturned by new evidence.
However, if Shefrin convinces a few investors to act more sanely, he will have fulfilled an important social function.
Customer Rating:
Summary: Packed with Knowledge !
Comment: If only you could bring yourself to ditch those losers from your portfolio, and hang onto your winners. If you can, you are unusual. Unprofitable habits afflict nearly all investors, beginners and pros alike, writes Hersh Shefrin in this intriguing study of the role of emotions in investing. Shefrin balances the jargon with plenty of real-world examples and wisely cautions you not to delude yourself into thinking that his tips will make you rich. Viewing investing through the prism of behavior finance, he analyzes emotionally-laden decisions made by private investors, money managers, bankers and other professionals handling stocks and various other forms of investments including options, foreign currency and futures. Shefrin offers juicy case histories, so his tour of behavioral finance is mostly enjoyable and useful. At times, though, the book bogs down in the author's attempts to legitimize behavior finance, a relatively new school of thought. For instance, he charges failed investors with committing "heuristic bias" or falling prey to "representativeness." That quibble aside, we recommend this intriguing tome to investment decision makers on any level. Whether you are running billions or managing a retirement account (which, as Shefrin notes, most people do badly), maybe this book will buffer you against emotional investing and pocketbook pain.
Customer Rating:
Summary: Comprehensive, Entertaining Overview of Fascinating Field
Comment: Wondering what Brealy & Myers or Sharpe left out? Don't expect your broker (or fund manager, excepting Richard Thaler) to fill you in. This book is a must read for any active (or passive) participant in the markets, or any other citizen who is affected by said markets. Meaning all of us.
Shefrin provides a masterful exposition of the application of cutting-edge cognitive psychology to the behavior of retail and institutional investors, analysts, mutual fund managers, CEO's and even heavily-advised university investment committees. The result is the theoretical demolition of the efficient markets hypothesis in even its weakest form, and the related CAPM(s), catching up to their long-noted empirical failings. As it turns out the market does have a memory, and that's not just an anomaly any more. Not every trade is zero-NPV: trust the market price at your own peril. Think dividends are irrelevant? Think again.
What we're left with is a fascinating account of how market participants actually behave: holding on to losers too long, trading too much and trading on "noise," and most alarmingly, undersaving for retirement. What is significant is that these phenomena are so prevalent that they can no longer be dismissed as irrational with the hope that "more sophisticated" money will magically correct the market. To the contrary, what Shefrin describes is proved to be the psychological norm; if you believe you're different, you're either very lucky or overconfident about your lack of overconfidence.
One quibble, in an area that I have looked at before, is in Shefrin's discussion of takeovers. First, I found a bit of confusion between the question of whether the takeover premium should be tested by reference to the post-announcement combined value of both firms, or just the buyer. Since the buyer's CEO is initially fiduciary for just his shareholders, I see only the latter as relevant.
More significantly, Shefrin does not provide any means to rigorously discriminate among his hubris hypothesis and other, more rationalistic theories, such as agency costs and private benefits. And his brief treatment omits many puzzling follow-up questions: if CEO psychology has the potential to systematically destroy shareholder wealth, what should we then conclude about the investors and analysts who allow them to get away with it? Just a governance problem, or is there yet another psychological story to be told?
But the desire to delve further into the subject is just indicative of Shefrin's compelling and readable narrative. For bottom line types, I'm afraid the answer to your question is no, he doesn't explain how to get rich. But you'll surely do alot better with a single yellowing copy of Graham & Dodd than all the reams of abstruse, dogmatic journal articles ever spewed by the Chicago School.
Even the best Wall Street investors make mistakes. No matter how savvy or experienced, all financial practitioners eventually let bias, overconfidence, and emotion cloud their judgement and misguide their actions. Yet most financial decision-making models fail to factor in these fundamentals of human nature. In Beyond Greed and Fear, the most authoritative guide to what really influences the decision-making process, Hersh Shefrin uses the latest psychological research to help us understand the human behavior that guides stock selection, financial services, and corporate financial strategy. Shefrin argues that financial practitioners must acknowledge and understand behavioral finance--the application of psychology to financial behavior--in order to avoid many of the investment pitfalls caused by human error. Through colorful, often humorous real-world examples, Shefrin points out the common but costly mistakes that money managers, security analysts, financial planners, investment bankers, and corporate leaders make, so that readers gain valuable insights into their own financial decisions and those of their employees, asset managers, and advisors. According to Shefrin, the financial community ignores the psychology of investing at its own peril. Beyond Greed and Fear illuminates behavioral finance for today's investor. It will help practitioners to recognize--and avoid--bias and errors in their decisions, and to modify and improve their overall investment strategies.
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