Monday, December 13, 2010

Statman, What Investors Really Want

Meir Statman’s What Investors Really Want: Discover What Drives Investor Behavior and Make Smarter Financial Decisions (McGraw-Hill, 2011) is a book that every investor should read. Statman is an academic, but he writes like a best-selling author. He uses the findings of behavioral finance, in which he himself has done extensive research, to expose the mistakes we make and to offer advice that ranges from the “ka-ching” practical to the rabbinical.

For those who are acquainted with the mainstays of behavioral finance literature, let me assure you that there’s a lot of new material in this book. Even where Statman covers familiar ground, he does it in such a winning way that he often unlocks something that was hitherto unknown, or repressed.

He uses the World’s Work, a magazine published a century ago, as well as Internet ads to illustrate his points. He retells stories about such characters as the notoriously stingy Russell Sage; he writes about herding from China to Finland, from librarians to institutional investors. He explores the rationalization that allows investors to find it easier to sell losers in December than in November: “What is framed as a loss in November is framed as a gain, in the form of a tax deduction, in the following December.” (pp. 142-43)

Statman also ventures into world of values because ultimately, he argues, “investments are about life beyond money.” He explores socially responsible investing, our demand for fairness, and our investments in our children and families.

All in all, this is a rich book—and a book that might make you richer in a multitude of ways.

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