Understanding how to use behavioral finance theory in investingis a hot topic these days. Nobel laureate Daniel Kahneman hasdescribed financial advising as a prescriptive activity whose mainobjective should be to guide investors to make decisions that servetheir best interests. The reality? That's easier said than done. Inthe Second Edition of Behavioral Finance and WealthManagement, Michael Pompian takes a practical approach to thegrowing science of behavioral finance, and puts it to use for realinvestors. He applies knowledge of 20 of the most prominentindividual investor biases into "behaviorally-modified" assetallocation decisions. Offering investors and financial advisors a"self-help" book, Pompian shows how to create investment strategiesthat leverage the latest cutting edge research into behavioralbiases of individual investors. This book:
- Shows investors and financial advisors how to either moderateor adapt to behavioral biases, in order to improve investmentresults and identifies "the best practical allocation" forinvestment portfolios. Using these two sound approaches for guidinginvestment decision-making, behavioral biases are incorporated intothe portfolio management process
- Uses updated cases studies to show investors and financialadvisors how an investor's behavior can be modified to improveinvestment decision-making
- Provides useable methods for creating behaviorally modifiedinvestment portfolios, which may help investors to reach their longterm financial goals
- Heightens awareness of biases so that financial decisions andresulting economic outcomes are improved
- Offers advice on managing the effects of each bias in order toimprove investment results
This Second Edition illustrates investors' behavioralbiases in detail and offers financial advisors and their clientspractical advice about how to apply the science of behavioralfinance to improve overall investment decision making.