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Managing the Mental Aspect of Investing

by Meir Statman

Managing The Mental Aspect Of Investing Splash image

Meir Statman is the Glenn Klimek Professor of Finance at Santa Clara University, Santa Clara, California, and author of the recently published “What Investors Really Want” (McGraw-Hill, 2011). I spoke to him recently about mental hurdles investors face when making investing decisions.

Charles Rotblut, CFA

Charles Rotblut (CR): In your book, you talk about how people commit cognitive errors such as confirmation errors and hindsight errors. Can you elaborate on the kinds of cognitive errors that people commit when they make financial decisions?

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Meir Statman is a Glenn Klimek professor of finance at Santa Clara University, Santa Clara, California.


Discussion

John from Arizona posted over 2 years ago:

Gentleman brings things into perspective!


Donald from Michigan posted over 2 years ago:

I thought this was a great article..now I need to find out what managed payout funds at Fid./Vang. are??


Charles from Illinois posted over 2 years ago:

Very thought provoking article with lots of
real life examples.


Cecile from California posted over 2 years ago:

Interesting article reflects many of my ideas of investing. Will also look up managed payout funds.


Walter from New Jersey posted over 2 years ago:

I have the tendency to relish the gains and kick myself for the losses. This puts the psychology in perspective.


Bob from California posted over 2 years ago:

What if your losses are in a Roth account and not available to offset poential gains?


Dewey from Texas posted over 2 years ago:

Perhaps the best interview I've had the pleasure of reading. Salute' Meir Statman.


We should realize the best total return lies in taxable accounts. 'Wish I had realized that years ago!


Larry from Florida posted over 2 years ago:

I am picky about what I read...I read this one; very substantive.


Ed from Maryland posted over 2 years ago:

Very little of this article applies to those of us managing a self-directed IRA. Surely, Mr. Statman does not recommend the almost universal "buy and hold" strategy that financial advisors lazily use to get their 2% commission. He almost admits that the layman has no chance against his ilk, the insiders, big brokerages and high frequency traders. Check out Buffets extremely advantages terms when he "loaned" BAC $5 billion as a example. Dilution of common stock, anyone? AAII would serve its members better by not publishing generic pablum that can't be contested. Doubt that? Pick one thing that irritates you and submit a complaint to the SEC, CME or CFTC. Then, do the same thing you do when you buy a stock that looks good. Hold your breath and hope.


Richard from Illinois posted over 2 years ago:

Yes, a trader is not the same as an investor. As an investor, be diversified (with cash as part of allocation) and wait til the herd is panic selling to purchase undervalued assets. Sell them a few years later when everyone is optimistic and enjoy the rewards.


Marvin from Illinois posted over 2 years ago:

I think the article is very thought provoking and i will use his recommendation on not taking credit for gains and shrug my shoulders when I have losses rather than holding them until they return to profitability, which may never happen as we all know.


William Vogel from Alabama posted about 1 year ago:

actually one ofthe best i have read


Steven Duncan from New York posted about 1 year ago:

I read this article last year and enjoyed it.
I read it again a year later, this time I took notes! Great insights such as: So why are you trading when Goldman Sachs might be on the other side of the trade? Remember there is an idiot in every trade, and if you do not know who it is, it is likely you. A great article to revisit once a year!


Les from Maryland posted 3 months ago:

A good read. I liked the tennis court example and that Goldman might be on the other side of the trade and one of us is an idiot. Very thoutht provoking.


Ronald Gilbert from California posted 3 months ago:

Goldman usually wins---GIL


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