Unbiased Investor (eBook)

COREEN SOL, Chartered Financial Analyst, has helped investors avoid the impact of behavioral bias during extreme market events for more than three decades. She brings a unique view that combines an academic perspective with a compassionate understanding of how people feel about money in the real world. Coreen is a former adjunct professor at the University of British Columbia Okanagan, manages a private wealth practice in British Columbia, Canada, and sits as a director on the board of CFA Societies Canada, an advocacy organization for investment integrity.

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