In 2018, volatility returned to the markets after a roughly two-year absence. Questions are beginning to creep into investors minds. Are interest rates heading steadily higher? Should I own fixed rate bonds? Are the stock markets taking a turn for the worse? What is happening with North Korea? Is Facebook stealing my data without my permission? These and other questions can make investors question their long-term strategies.
It is at times like these that you want to remember the behavioral bias we all have lurking in our brains. Luckily, in Baltimore, we have one of the foremost experts on the subject working right in Towson. Dr. Victor Ricciardi is an Assistant Professor of Financial Management at Goucher College in Towson, Maryland. I met Victor about two years ago. He teaches courses in financial planning, investments, corporate finance, behavioral finance, and the psychology of money. Professor Ricciardi is a leading expert on the academic literature and emerging research issues in behavioral finance. Kent Baker and Victor Ricciardi are co-editors of the book Investor Behavior: The Psychology of Financial Planning and Investing published in February 2014. He has been featured on numerous podcasts, articles and videos on the topic of behavioral finance.
If you would like to learn more about how your mind can be your biggest enemy in the investing world, here are a couple of books I would recommend.
A couple of great authors on the subject include The Wall Street Journal’s Jason Zwieg. In 2008 he wrote, Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich. Bill Miller, former CIO for Legg Mason Capital Mgmt and current CIO of Miller Value Partners said, “Jason Zweig is one of the world’s experts on the investing process. He has written the best book yet on the emerging science of neuroeconomics. Buy it, read it, and become a more thoughtful, and a better, investor.”
A second book is another in the line of the “Little Book” series. Written by GMO strategist, James Montier The Little Book of Behavioral Investing is a detailed guide to overcome the most common emotional pitfalls of investing. Bias, emotion, and overconfidence are just three of the many behavioral traits that can lead investors to lose money or achieve lower returns.
Helping to manage investor behavior is, in my opinion, one of the most important benefits of working with a financial advisor. Recognizing that we all have these inherent headwinds is the first step to becoming a successful investor. The second and more difficult step is effectively managing those headwinds.