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Stop. Think. Invest.
Book

Stop. Think. Invest.

A Behavioral Finance Framework for Optimizing Investment Portfolios

Michael Bailey
McGraw-Hill, 2022
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Editorial Rating

7

Qualities

  • Applicable
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  • Insider's Take

Recommendation

If you want to beat the stock market, don’t be an animal – “animal spirits” may make investing exciting and markets thrilling, but the most successful investors, both professional and amateur, put emotions aside to take sober and realistic perspectives on stocks. Author Michael Bailey bases his guide to investing on the practical discoveries of pioneers in behavioral economics, as well as on his own experiences as a professional investor and sports coach. While getAbstract never offers investment advice, this book’s step-by-step tips, enlivened by case studies, could help you step up your game.

Summary

The “investment life cycle” will help discipline your investing.

Despite talk about the “wisdom of crowds,” emotions often drive markets. To minimize the chances of letting emotions rule your investing, use the discipline imposed by the investment life cycle, which has multiple phases. First, savvy investors begin with an exploration of a new investment target, and then they initiate and complete their research. After forming an investment thesis, they decide when and how much to trade, and they make their first purchase. After analyzing performance in early days, they consider making more trades and then execute them. Eventually they review their initial investment thesis, determine whether and when to sell – and how to improve. And they always take into account the “economic web of bias” that influences investment decisions. This web of bias encompasses financial regulators, central bankers, corporations, the media, expert opinions and other market forces. 

Keeping control of your emotions and being aware of your preconceptions can help you skirt financial calamity. Nobel laureates Daniel ...

About the Author

Michael Bailey, CFA, is the director of research and investment committee chair for FBB Capital Partners, an investment firm.

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