Book Reviews Investment Psychology Explained: Book Review

Investment Psychology Explained: Book Review

This book is an amalgamation of knowledge on the psychological aspects of market traders and investors.
Banali Banerjee Nov 21, 2015

The author, Martin J. Pring feels that the task of ‘beating the market’ is not difficult but ‘beating ourselves’ which means mastering the emotions and to think independently is difficult. In the book, ‘Investment Psychology Explained’, the author believes that there is no easy route to get rich in the financial markets. He emphasizes that investors have to be analytical to take investment decisions in today’s market.

The book divided into three parts is a step by step guide for investorsto overcome their weaknesses on investments.

Part One: Knowing Yourself

This section deals with personal psychology. The author points out that before making any investment decision, it is necessary to know yourself first. An investor need to master and control his/her emotional tendencies which could be financially destructive. Many times, decisions made on basis of sentiment leads to losses. The book explains that there is no shortcut to get rich and you have to be patient and disciplined in the road of smart investing.

Martin explains that our minds revolve between two destructive mental forces, ‘fear’ and ‘greed’. As investors, the psychological temperaments differ from person to person. Some come to the marketplace with more biases than others. For example, someone with a sour experience in the markets is less likely to take risks. This triggers fear. On the other hand, the author says that greed results in overconfidence and a desire to achieve more profits in the shortest amount of time. This desire to earn higher profits is often a cause of greater stress among investors.

In this section, he advises investors to maintain a balance between fear and greed.

Part Two: The Wall Street Herd

This part deals with discussion on crowd psychology and contrary opinion. He says that an investor should know when to stand against the crowd. He explains this by using the Theory of Contrary Opinion propagated by Humphrey Neill. He opines that the investors who merely follow a crowd may not benefit and you will need to know when to go against them. One should start a countertrend against the crowd. He gives an example of an economy hit with a recession. He emphasizes that during this phase media and economic forecasts are universally grim and dull which disturbs the investors. A contrarian on the other hand, will look at the positive aspects and will take proactive steps to profit from this disaster.

Part Three: Staying one step ahead

This section focusses on the characteristics of successful investors and traders which sets them apart from others. He identifies certain common traits among these successful investor which according to him were instrumental in their market success. With this book, you will learn how to stick to the investment plan and make decisions analytically. Here are just a few trading rules for greater profits:

  • When in doubt, stay out
  • Never trade or invest based on hope
  • Act on your own judgement
  • Analyse your mistakes

The last chapter of this section deals with classic rules laid down by market experts like Bernard Baruch, Franklin J. Williams, Robert Meir, S.A. Nelson and others.

The book reiterates that you need to understand the markets well to grow your business.

So grab this book if you want to understand your clients better, help them make smart investment decisions and GROW YOUR BUSINESS .

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