In Unbiased Investor: Reduce Financial Stress and Keep More of Your Money, Portfolio Manager at CIBC World Markets, Coreen Sol, delivers an inspiring and illuminating roadmap to investing success. In the book, you’ll explore the behavioral and psychological roadblocks to achieving optimal results from your portfolio and the strategies you can use to overcome them. You’ll learn to focus on basic economic principles - rather than harmful psychological biases - to reduce financial stress and reliably grow wealth.
The book also shows you how to: - Recognize the decision-making shortcuts (heuristics) we use to navigate and understand the world around us - Avoid counter-productive and ineffective risk-management strategies that decrease returns without mitigating risk - Consider your own financial goals, personal preferences, and skills in the creation of a strategy to make good financial choices, consistently
A powerful and easy-to-follow handbook for everyday investors, Unbiased Investor shows readers from all kinds of background the foundational, straightforward behaviors and habits we need to embrace to realize financial security.
Table of Contents
Introduction: The Path of Least Resistance 1
Chapter 1 Making Sense of What You See 9
Anchoring: An Invisible Hand 9
Representativeness: If It Walks Like a Duck 15
Money Illusion: The Rule of 72 and the Risk of Inflation 20
Recency Effect: A Clear and Present Danger 23
Reversion to the Mean: That Makes Sense but Doesn’t Answer Anything 27
Availability Bias and Distortion: Overestimating What You Can Easily Recall 29
Familiarity Bias: Recognizing a Stranger 31
Proportional Money Effect: Why We Save Pennies Only to Neglect Dollars 35
Mental Accounting: Pigeonholing Money 37
Endowment Effect: Loyalty Reward Points are Not Free Money 40
Status Quo Bias: The Influence of Inertia 45
Chapter 2 Controlling Risk 49
Conservativism: Close but No Cigar 49
Gambler’s Fallacy: Heads or Tails? 51
Possibility and Certainty Effect: A Bird in the Hand Is Worth Two in the Bush 52
House Money and Break-Even Effect: What Just Happened? 56
Disposition Effect: The Worst Time to Lock in a Profit 59
Loss Aversion and False Risk Control: Ante Up! 61
Chapter 3 Wanting To Be Right 65
Overconfidence: We All Can’t Be Above Average 65
Hindsight Bias Is Convincing: I Knew It! 69
Cognitive Dissonance: The Grapes Were Sour Anyway 71
Confirmation Bias: Buying and Selling a Boat 73
Availability Bias, Recency Effect, and Real Estate: House Prices Always Rise, Right? 76
Sunk Cost: Why Camping Seems Affordable 81
Barnum and Forer Effect: A Fool Is Born Every Minute 86
Loss Aversion Undermines Your Beliefs: Trading Money for Sleep 89
Herd Mentality: Consensus Hurts Performance 91
Chapter 4 Developing Your Personal Economic Values 99
Why Commit to the Eight Steps? 99
Personal Economic Values Workbook 103
Chapter 5 Adopting Unbiased Habits 113
The Point of Impact 113
Don’t Take It Personally 117
Quantify Your Returns 119
Keep a Journal of Investment Decisions 121
The Power of SMT 122
Negotiations 124
Just Pick One 125
Automate, Outsource, and Schedule 127
Stop Checking Your Investments 130
Establish Investment Constraints 133
Stick to Your Plan 134
Reframing Decisions 135
No Safety in Numbers 136
Money Doesn’t Care Where It Came From 137
Craft Your Personal Investment Policy Statement (IPS) 138
I Knew-It-All-the-Time 145
Cut Your Losses 147
Trees Don’t Reach the Sky 148
In the Absence of Research 151
Be Average 153
The Unbiased Habit Checklist 155
Chapter 6 What An Investment Advisor Can and Cannot Do 161
The Bottom Line 161
Bull Markets and DIY 161
Is Passive Investing a Silver Bullet? 166
Intuition 169
Avoiding Hindsight Bias with Training 172
When to Trust Expert Investment Advice 175
Know What You Don’t Know 177
Bias Resistance 179
Portfolio Abandonment 181
Chapter 7 Can Money Buy You Happiness? 185
Happiness, Work, and Retirement 186
Happiness and Spending Money 191
Happiness and Gluttony 194
Health, Happiness, and Your Money 198
How Much Is Enough? 200
Notes 205
Index 209
