A Practitioner's Guide to Behavioral Finance von Reto Gallati

The efficient market hypothesis is based on the theory that investors are fundamentally rational actors that make unemotional, profit-driven investment decisions. However, if investors are inherently driven to act in their own best interests, why do they buy "hot" stocks without examining the fundamentals, sell off all of their holdings in the midst of market downturns, and typically fail to achieve market-index returns? The answer, as Reto R. Gallati reveals in A Practitioner's Guide to Behavioral Finance, is that, instead of being cold and calculating, investors often make decisions based on psychological and emotional elements that thwart their ability to realize returns on their investments. The bad news is that no investor is immune to the innate biases that can lead them to lose money. The good news, however, is that once investors recognize that there is a psychological element to all investor decision-making, they can take measurable steps to mitigate or avoid the negative effects that behavioral biases have on their portfolio returns. To that end, A Practitioner's Guide to Behavioral Finance documents the most prevalent behavioral errors that hinder investors' decision-making abilities and analyzes the impact that each has on investor returns. It then provides concrete, logical solutions for overcoming the tricks investors' brains play on them when they are confronted by a wide array of market scenarios.  Filled with instructive lessons drawn from real-life market scenarios, A Practitioner's Guide to Behavioral Finance teaches readers: Why market booms, bubbles, and busts can trip up any investor, from Nobel laureates managing billions of dollars  to individuals trying to save for retirement How to recognize when their judgment is being impaired by a wide range of behavioral biases, from selective perception to framing to groupthink How to develop financial decisionmaking habits that will better position them to achieve important financial goals How irrational investor behavior impacts not only investor returns, but also market prices, market volatility, market stability, and the overall health of the economy  Grounded in academic research but accessible to professional and sophisticated individual investors alike, A Practitioner's Guide to Behavioral Finance provides proven strategies for investors who are looking to overcome their own worst enemy when it comes to investments: themselves.

Reto R. Gallati is the president and CIO of Raetia Investments,LLC, a private investment and trading company, and a board member of CIIM, aEuropean investment company. He was formerly the head of investments and chiefrisk officer at Nuveen Investments. Gallati held senior positions at severalWall Street firms, including deputy chief risk officer at Putnam Investments,deputy CIO and senior portfolio manager at Goldman Sachs Bank in Zurich, andportfolio manager at Credit Suisse. He is an adjunct professor of finance atthe University of Chicago s Booth School of Business and formerly heldprofessorships at the MIT Sloan School of Management and Boston University andlectured at the University of Zurich and the University of St. Gallen. He isthe author of seven books and numerous scholarly papers on risk management,capital adequacy, income securities, portfolio construction, asset allocation,and investment and hedging styles of internationally diversified funds. Heearned his PhD in mathematics and finance from the University of Zurich and hisbachelor s degree in finance and economics from the University of St. Gallen.