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<p>Foreword xi</p> <p>Preface xiii</p> <p>Acknowledgments xxi</p> <p><b>PART ONE Introduction to Behavioral Finance 1</b></p> <p><b>CHAPTER 1 Why Reaching Financial Goals Is Difficult 3</b></p> <p>Nonfinancial Examples of Self-Defeating Behavior 4</p> <p>Financial Examples of Self-Defeating Behavior 8</p> <p>Summary 11</p> <p>Notes 12</p> <p><b>CHAPTER 2 Overview of Behavioral Finance 13</b></p> <p>Behavioral Finance: Micro versus Macro 14</p> <p>Standard Finance versus Behavioral Finance 15</p> <p>The Role of Behavioral Finance with Private Clients 22</p> <p>Practical Applications 22</p> <p>Notes 24</p> <p><b>CHAPTER 3 The Building Blocks: Behavioral Biases 25</b></p> <p>Cognitive Biases 27</p> <p>Emotional Biases 38</p> <p>Summary 43</p> <p>Notes 44</p> <p><b>PART TWO Personality Theory 45</b></p> <p><b>CHAPTER 4 Introduction to Personality Theory 47</b></p> <p>History of Personality Theory 48</p> <p>Four Main Personality Theories 50</p> <p>Notes 65</p> <p><b>CHAPTER 5 The History of Personality Testing 67</b></p> <p>Types of Personality Tests 67</p> <p>Summary 77</p> <p>Notes 77</p> <p><b>CHAPTER 6 The Behavioral Investor Type Framework 79</b></p> <p>Reviewing the Original Process 81</p> <p>The Behavioral Alpha Process: A Top-Down Approach 81</p> <p>Updates to the Previous Model 85</p> <p>Updated BIT Theory and Application 87</p> <p>Summary 89</p> <p><b>CHAPTER 7 Behavioral Investor Type Diagnostic Testing 91</b></p> <p>Step 1: BIT Orientation Quiz 92</p> <p>Step 2: Bias Identification Quiz 94</p> <p>Summary 100</p> <p><b>PART THREE Explanation of the Behavioral Investor Types 101</b></p> <p><b>CHAPTER 8 The Preserver 103</b></p> <p>Upside/Downside Analysis 104</p> <p>Bias Analysis 105</p> <p>Other Biases 107</p> <p>Advice for Preservers 109</p> <p><b>CHAPTER 9 The Follower 111</b></p> <p>Upside/Downside Analysis 112</p> <p>Bias Analysis 113</p> <p>Other Biases 117</p> <p>Advice for Followers 119</p> <p><b>CHAPTER 10 The Independent 121</b></p> <p>Upside/Downside Analysis 122</p> <p>Bias Analysis 123</p> <p>Advice for Independents 133</p> <p><b>CHAPTER 11 The Accumulator 135</b></p> <p>Upside/Downside Analysis 136</p> <p>Bias Analysis 137</p> <p>Other Biases 141</p> <p>Advice for Accumulators 144</p> <p><b>PART FOUR Plan and Act 147</b></p> <p><b>CHAPTER 12 Capital Markets and Asset Classes 149</b></p> <p>Overview of Asset Classes 150</p> <p>Publicly Traded Equity Investments (Stocks) 154</p> <p>Fixed Income Investments (Bonds) 163</p> <p>Hedge Funds 172</p> <p>Real Assets 176</p> <p>Simple Portfolio Construction 180</p> <p>Summary 182</p> <p>Notes 182</p> <p><b>CHAPTER 13 What Is Asset Allocation? 183</b></p> <p>The Importance of Assumptions 185</p> <p>The Importance of Strategic Asset Allocation 186</p> <p>Considerations for Individual Investors 188</p> <p>Why Asset Allocation Is So Important 197</p> <p>Summary 200</p> <p>Notes 200</p> <p><b>CHAPTER 14 Financial Planning: A Crucial Step 201</b></p> <p>What Is Financial Planning? 202</p> <p>Working with a Financial Planner 203</p> <p>What Is a Certified Financial Planner? 205</p> <p>Who Can Provide Financial Planning Services? 209</p> <p>Summary 212</p> <p>Notes 213</p> <p><b>CHAPTER 15 Investment Advice for Each Behavioral Investor Type 215</b></p> <p>Foundations of Best Practical Allocation 216</p> <p>Guidelines for Determining When to Moderate and When to Adapt 217</p> <p>Best Practical Allocation for Preservers 219</p> <p>Best Practical Allocation for Followers 222</p> <p>Best Practical Allocation for Independents 224</p> <p>Best Practical Allocation for Accumulators 227</p> <p>Summary 229</p> <p>Note 230</p> <p>Index 231</p>

<p><b>MICHAEL M. POMPIAN, CFA, CAIA, CFP,</b> is a partner at Mercer Investment Consulting (formerly Hammond Associates) serving institutional and private wealth clients. Prior to joining Mercer, he worked at Merrill Lynch and PNC Private Bank, as well as the investment staff of a family office. Pompian holds the Chartered Financial Analyst (CFA) designation, is a Chartered Alternative Investment Analyst (CAIA) and a Certified Financial Planner (CFP). He is also a member of the CFA Institute (formerly AIMR) and the New York Society of Security Analysts (NYSSA). He holds a BS in management from the University of New Hampshire and an MBA from Tulane University. He is a regular speaker on the subject of behavioral finance and has published numerous articles on the subject. He is married with three sons and can be reached at mpompian@hotmail.com.</p>

<p>Praise for <i><b>Behavioral Finance and Investor Types</b></i></p> <p>"Michael has done yeoman's service in taking years of academic research and his own practitioner insights to illuminate the mandatory need to understand the virtues of the physiological implications of choice. He is bringing these essential findings to the forefront of untangling everyday investment thinking with the clear mandate of implementing sound investment decisions. His combined knowledge of the inherent drivers of investor behavior, and years of careful observation, clearly illuminates that shoe sizes, so to speak, vary a great deal."<br /> —<b>Arnie Wood</b>, CEO, Martingale Asset Management</p> <p>"Pompian brings something new to the field of behavioral finance books. By combining insights into our fundamental cognitive and emotional biases with insights into fundamental personality types, he provides concrete, practical action steps to avoid making big mistakes. In classic Pompian style, he does it with efficient, easy-to-read prose. You do not want to make important financial decisions without reading this book."<br /> —<b>Stephen Horan</b>, Head, University Relations and Private Wealth, CFA Institute</p> <p>"For centuries, great thinkers like Hippocrates and Plato have sought to explain the distinct personality types that drove human behavior. <i>Behavioral Finance and Investor Types</i> extends their constructs and identifies unique Behavioral Investment Types that help explain why investors have such difficulty in achieving their long-term goals. This book provides an outstanding road map for understanding our individual behavioral biases, embracing our unique investor personality, and allocating our portfolios to capitalize on our individual strengths. <i>Behavioral Finance and Investor Types</i> is required reading for any investor who wants to enhance the probability of achieving long-term investment success."<br /> —<b>Mark Yusko</b>, CEO and CIO, Morgan Creek Capital Management</p> <p>"Personality is linked to investors' cognitive errors, including overconfidence, and emotions, including regret. Michael Pompian contributes greatly to our understanding of investors' behavior as he exposes these important links."<br /> —<b>Meir Statman</b>, Glenn Klimek Professor of Finance, Santa Clara University</p> <p>"Michael Pompian takes investors on a fascinating tour from behavioral finance through personality theory to what he calls Behavioral Investor Types. He manages to simplify the complex world of behavioral investing so that investors and their advisors can get their arms around this large subject. Best of all, Pompian provides clear guidance for how to avoid the behavioral traps that stand between investors and their financial goals."<br /> —<b>Gregory Curtis, Chairman</b>, Greycourt & Co., Inc.</p> <p>"Chock-full of practical applications, this book is an invaluable introduction to behavioral finance, a field of study that will make you a much better investor and advisor. It will certainly be required reading in our practice."<br /> —<b>Harold Evensky</b>, President, Evensky & Katz</p>

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