Behavioral Portfolio Management: How successful investors master their emotions and build superior portfolios

I'm halfway through the book and still haven't gotten anything actionable. Likely won't finish. Opportunity costs being what they are.

In spite of the fact that most current investment thinking is built around models like the Efficient Market Hypothesis, Modern Portfolio Theory, and other models the research that I and others have done does not support these theories. As a result most popular investing currently in vogue is sub-optimal on a good day. The author discusses the weaknesses in the current models drawing heavily on the work of Robert Haugen and his own research. He also brings in a large dose of behavioral finance drawing heavily on the work of Daniel Kahneman. The result is a good summary of the slow disintegration of the old thinking and insights into where investment thinking is headed.However, the book is more than that. If you are willing to actively participate in his 12-step program you can discover ways to significantly increase your investment returns. You will read about things like Myopic Loss Aversion (MLA) and how it effects your investments. How diversification may not be the best thing for you. Just to name a few issues.In summary I found the book absolutely fascinating. With that said be aware of 2 issues: 1) although the book is particularly quantitative much of the work challenging old theories is fairly quantitative. 2) If you are firmly attached to the old theories of MPT and EMH you will find the ideas in this book to be very different and very disquieting.

Also arrived with a personalized autograph from the author, Dr. Tom Howard, a very nice touch.

By far and away the best book I have read on the topic of Behavioral Finance. It simply takes the subject matter to another level of application and relevance. A superb book for anyone interested in this fascinating and growing field of study!

This book provides some high level ideas regarding Behavioral Investment Theory. It is a work in progress and provides some general ideas for consideration but lacks details regarding analysis specifics that would enable a practitioner to implement them and/or to validate the authors conclusions.

This is a book on how to exploit the irrationality of financial markets. Thomas Howard is the Denver University finance professor that converted from Modern Portfolio Theory (MPT) to Behavioral Finance and turned practitioner by founding AthenaInvest where he as the CIO oversees the research. The author’s stated aim of the book is to teach the reader how to avoid being part of the mindless investor herd and instead becoming a Behavioral Data Investor, a BDI. Conventional wisdom concerning markets is often wrong and to discover what truly works requires analysis of data instead of anecdotal evidence.The book is divided into three sections with the first two laying the foundations for the third. A large number of themes are presented in the first sections. Examples are; a catalogue of behavioral finance biases that make up a cheerful chapter, the premise that emotions drive most of the stock market volatility and not changes in fundamentals, the human inability to intuitively understand randomness is covered and the author lashes out against the MPT-proponents, their methods and their disappointing empirical results.Several of my pet opinions get air-time: a) long term investors should measure volatility over longer time horizons, b) volatility isn’t risk to start with if you’re not a short term investor, c) that the market movements to a large extent are created by a tug of war between (in my parlor) momentum investors and value investors and d) that the so called style grid is doing savers a huge disfavor as it cages PMs into one section of the market, making them unable to exploit opportunities where they currently are. Despite this I still grew increasingly annoyed during reading the first two sections. The same topics are brought up too many times and the tone of the language that at first felt unpretentious started to feel almost patronizing. The subtitle of the book is “How successful investors master their emotions and build superior portfolios” but the preface never really explains who the intended reader is. Then one of the middle chapters mentions the dual target groups investment advisors and asset managers and this explains a lot. In my opinion the book should have benefited from choosing one of the audiences. They have different backgrounds, knowledge and interests.Then comes the third section and saves Howard’s bacon. In this part of the book the author shows that PMs are actually good stock pickers as their largest positions on average show positive alpha. However, they are bad portfolio managers since they over-diversify and nullify the positive alpha. Further, the author looks at investment philosophy in a valuable way. By dissecting 2800 mutual funds he singles out 10 investment philosophies in use and also a large number of strategy elements linked to the philosophies. For example a PM could have “Competitive Position” as a primary philosophy and “Valuation” as a secondary and by this use the elements “Strong fundamentals,” “Defensible market position”, “Intrinsic Valuation”, “Overall company growth”, “Management quality”, “Cash flow valuation”, “Economic output” and “Price ratios”. Certain combinations are tested to perform better than others and style consistency is shown to be of huge importance for results. I think this is highly innovative research.Texts that try to bring the academic findings of behavioral finance to the practical world of Wall Street are a rare and appreciated commodity. Unfortunately, even though Howard uses academic research the link to behavioral finance isn’t always obvious and this makes the title of the book a bit misleading. There are too much sound opinions and interesting facts in this book not to rate it with four stars but the reader should be aware that the first two sections are perhaps more suited to investment advisors and the last to asset managers.In the end Howard manages to build an interesting and - according to his investment results - profitable mosaic out of his theoretical knowledge.This is a review by investingbythebooks.com

An interesting and worthwhile read.

Best book I have ever read!!!!