Unbiased Investor

Make better financial choices, reduce money anxiety, and grow your wealth 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.

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