The Behavior Gap: Simple Ways To Stop Doing Dumb Things With Money (2012) - Plot & Excerpts
There is indeed a behavior gap between the market's returns and the investors' own returns, since investors tend to buy high and sell low. However, the author doesn't actually offer a scientific explanation. Rather, there's a retread of the typical investment advice: 1) do not chase performance, 2) tune out the market noise, 3) have clear goals and then devise financial plans, 4) do not try to keep up with the Joneses, 5) live within your means. If they sound familiar, that's because they are rudimentary advice that can be found in USA Today columns. In fact, the language is so basic that the author refers to "prices we stick to", instead of the term anchor price. There are many books that offer deeper analysis from a behavioral finance perspective, which I believe is helpful is changing people's behavior. One that comes to mind is Jason Zweig's "Your Money & Your Brain". Breezed through this once more after being reminded of it and thought I'd write down what I thought (it's a thin book, big type, lots of pictures). Key points are in the first couple of chapters: We don't beat the market. Make fun of forecasts. Life planning (not financial planning.) The rest is more self-help in orientation, i.e. stay in the present moment, plan for the worst, invest in yourself, face complexity, have hard talks with your spouse and children. (Make that wife. I noticed about halfway through that there are annoyingly few examples of- anecdotes about- women.) My favorite sketch is from this part of the book, a venn diagram illustrating that you should focus on the intersection of things you can control and things that matter. Quotes of ideas or ways of explaining things worth noting:"The guy with the expensive credit card should stop watching CNBC and find a way to pay that balance off -- and earn an immediate, guaranteed 18 percent return on that investment. The guy without life insurance should get some and protect his family, rather than reading cover stories about hot stocks." "... fees are the only factor that reliably predicts a fund's performance. The higher the expense ration -- the cost of owning the fund -- the worse the performance for shareholders.""... I help people make smart decisions about money so that they can build and protect their wealth over time... this work doesn't require me to care about what the market did today or where the market will be in the future."P.S. What is the "behavior gap"? The difference between how INVESTMENTS perform and the returns that INVESTORS get. We buy high (a) and sell low (b) due to greed (a) and fear (b).
What do You think about The Behavior Gap: Simple Ways To Stop Doing Dumb Things With Money (2012)?
Easy read. Great information about how to think about investments and handling your money.
—crayon
For people who are into stock market, this is a very useful and informative book.
—Thrasher
Wonderful book with such simple concepts. This book is a must read.
—Tiaan
The complexities of planning and investing made simple. Loved it.
—lauren
1 We don't beat the market, the market beats us:
—Tscarlet90
