Product Description
Unique insights into how the mind of an investor operates and how developing emotional awareness leads to long-term success

Inside the Investor's Brain provides readers with specific techniques for understanding their financial psychology, so that they can improve their own performance and learn how to outsmart other investors. Chapter by chapter, author Richard Peterson addresses various mental traps and how they play a role in investing. Through examples, such as a gambling experiment with playing cards, the author shows readers how being aware of the subconscious can separate the smart investors from the average ones. This book also contains descriptions of the work of neuroscientists, financial practitioners, and psychologists, offering an expert's view into the mind of the market. Innovative and accessible, Inside the Investor's Brain gives investors the tools they need to better understand how emotions and mental biases affect the way they manage money and react to market moves.

CUSTOMER REVIEWS (Average Customer Rating: 4.5 based on 9 reviews)

Textbook

This isn't really a textbook but it reads like one (both in content and style). That is not a compliment. But if you need a primer to understand investor psychology this book is okay. But a textbook doesn't make you proficient in a deeper way. I don't get the feel that the current author has a strong voice, he reports.

However, if you are interested in your own psychology as a trader I do not recommend this book. In this case I recommend Brett Steenbarger's two books. This author has a strong voice.

I have written several short reviews on trading books. The best way is to compare the score on the books I've read. Many reviews on amazon.com are just glorious 5 star reviews. I use all five categories; sorry but everything isn't "great". Books rated 5 are very good. Books rated 4 are good solid books well worth reading. Books rated 3 can be bought by some people who read a lot or have very specific needs. Books rated 1 or 2 I would not recommend buying or reading. Naturally all in my humble opinion.
November 27, 2008

An Awesome Synthesis

Richard L. Peterson, Inside the Investor's Brain: The Power of Mind over Money (Wiley 2007).

Richard Peterson is a medical doctor with a residency in psychiatry, and with postgraduate training in neuroeconomics from Stanford University. He is a former stock trader, Associate Editor of The Journal of Behavioral Finance, a high-level professional economics journal. He also runs a hedge fund based on the principles laid down in this book. It would be hard to find someone better credentialed to give investment advice.

This a self-help book for people who are scientifically minded, care about managing their finances better, and are beyond the obvious, but most important, issues, such as paying the rent or mortgage on time, avoiding credit card debt, and treating Las Vegas or the state lottery as the wise man's preferred risk management strategy. The book is completely chocked with good ideas based on solid fact, and is nevertheless pleasant and enjoyable reading.

Peterson tells you right from the start the basics of investing: (a) if it sounds too good to be true, it probably is; (b) aggressive investing (churning your portfolio) is good for your broker and bad for you---pick a portfolio and then let it do its job without daily monitoring and stock switching; (c) if you think you can beat the market because you are lucky, smart, high-testosterone, physically attractive, blessed by God, or what have you, you are really just a sucker; (d) unless you have some special information (and that does mean a stock tip from your nephew in the pharmaceutical industry), stick with low overhead mutual funds and government/corporate bonds---read the prospectus to make sure there are no up front or back-loaded charges, and the yearly service charge is very, very small (expense ratio below 0.2%); (e) money that you might need in the next ten years should be put in bonds, the rest in stocks---older investors should have their retirement needs met by fixed return instruments, such as pensions, social security, and interest from bonds.

If you think anything I said in the previous paragraph is incorrect, you are a sucker and you will most likely lose money. If you follow all of the above principles, you are a wise investor, and you will make money. It is just that simple.

If you believe me, and you can actually follow this advice, you really don't need to read Peterson's book, although you may find it interesting on purely intellectual grounds. If you are a sucker, as defined above, you won't benefit from this book, but then again, you won't have gotten this far in this review, either.

Who, then, is this book for? First and foremost, it is for someone who has an open mind, does not accept uncritically my investment advice above, but is willing to be persuaded by the facts. Peterson presents all the fact you will ever need. Second, you may believe I am basically correct, but the existence of so many multi-millionaire "smart traders" suggests that there may be a "sixth sense" or a set of behavioral characteristics that allows their owners consistently to beat the market. Peterson believes there is, and he tries to show you how to develop them in this book. The three most important principles he offers are (a) if you know that lots of traders are emotionally biased in one direction, you can make money by betting on the other direction; (b) the market tends to overreact to short-term movements, and you can gain by overreacting in the other direction; and (c) if you can come to understand and correct you own emotional and behavioral weaknesses, you at least stand a chance of beating the market. As to how you come to pick future winners, I do not know, and Peterson does not explain. He talks of "intuition," "hunches", and the like. I am not convinced there is really anything there.

The behavioral economics explained in this book is very interesting in its own right, and Peterson is a wonderful teacher, always getting to the heart of the issue, and neither over- nor under-selling a particular point. As for the neuroscience in the book, it is flashy and impressive, but I think it is just window dressing.

September 04, 2008

more luck than brains......

I consider myself very lucky ! I look for a book that will describe what a trader\investor feels like and how can one deal with such feelings. It turns out that on my first search through the net I came across this great, thorough, professional, up todate book. Non of the books I came across after this one could supply the goods in one cover.
1) It was published in 2007 so many examples from the financial world or researches described in the book are relevant.
2) Its not an easy book to read, however that exactly what makes it professional and thorough. The author describes a behaviour, brings examples, and backs it up with research and experimental results, sometimes he even suggests the reader how to deal with similar situations accordingly.
3) If you are an experienced trader\investor this book can be like a mirror to your feelings. I personally related to most of the behavioural examples given in the book, as if Peternon wrote it about me. Of course we are all very much the same in that sense and the difference is actually how we manage (or learn to manage) our emotions.
To conclude: the recipe for making money in the market starts with "learn to manage your emotions". This book may teach you all about those emotions, managing then is something else.

Eitzik
January 21, 2008

Solid Book on the Brain's Impact on Trading and Investing

The typical investor is his/her own worst enemy, doesn't have a long-term investment strategy, cuts profits short and lets losses pile trying to break even, does not use stop loss orders, buys near the highs and sells near the lows, and likes to chase the hottest mutual funds or stocks. If you see yourself in any of these statements, then join the crowd. To become a better investor or trader it is crucial to understand how your brain impacts your decision-making. This book provides not only an exceptional insight into this process, but provides methods to deal with negative thoughts and ideas that can hamper clear thinking. The 23 chapters are presented in a logical sequence and the writing is clear and precise. This book contains critical information that investor and traders require to maximize their efforts to be profitable.

The research in this book is based on the behavioral finance field. The book answers two key questions: 1. What are the irrational fears driving my investment behavior? and 2. What can I do to better manage my fears? The key to investing is not just obtaining a solid financial and investment education, but also understanding your brain's topography. The readers will learn to recognize subconscious mistakes in their decision-making.

The author's credentials and background are impressive - not only is he an MD with a specialty in psychiatry, but also is a former trader, contributor to numerous publications, and is a seminar leader. The contents of this comprehensive 392-page book provide readers with a unique look at the workings of the mind and how they impact trading decisions. Also included is a 12-page glossary that definitely helps the uninitiated with key terms in psychology, and the 32-pages of detailed footnotes illustrating the monumental amount of work put into this project.

This book is not light reading and it cannot be read in a short time if you want to get the most out of it. I particularly enjoyed the chapters on anxiety, fear and nervousness; loss aversion; and charting and data mining as they made me recognize my own emotional reactions to these elements. Overall, the author provides a detailed view of the brain that can only help in improving our trading and investing processes.

November 05, 2007

Great book , extensive and worth reading

Aside from the section that deals with the brain, serotonin and other facets of the reward system, much of this information would already be common knowledge to someone who hasn't lived under a rock most of their life in isolation from others.
But thats just the thing, some need to have it spelled out on a page to fully realise or cement the depth of certain concepts into the mind.
Anyone who day trades knows the power of ramping but unfortunately the author doesnt reveal the mindsets of the daytraders, He wouldn't be able to for the book seems as tho it is written by a learned psychologist and not a trader.
You can get most of the info regarding trader habits, biases and self delusions anywhere but the section on neurology is worth the price itself. Good addition to a traders library.
October 24, 2007

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