Why Smart People Make Big Money Mistakes And How To Correct Them: Lessons From The New Science Of...

Why Smart People Make Big Money Mistakes And How To Correct Them: Lessons From The New Science Of Behavioral ... | Gary Belsky, Thomas Gilovich | Anyone interested in knowing why they can't save enough, read this book

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Why Smart People M...

	Why Smart People Make Big Money Mistakes And How To Correct Them: Lessons From The New Science Of Behavioral ... Gary Belsky, Thomas Gilovich Simon & Schuster, 2000 - 224 pages average customer review:based on 47 reviews view larger image
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highly recommended

We are all humans. Let's learn how to handle our flaws.

The book is terrific. I think it has to be read with a bit of humility, though. In my view is the only way we can recognize our own flaws, to give it a shot at correcting them.

The book presents several psychological traits that most humans, in one way or another, present when reacting to money decisions. Some of us tend to have more of one than another, but I think we all have some of each.

The authors present simple real-life dilemmas that we all encounter at some point . We are not talking about how to pick the next hot hedge fund or whether to sell an option short. Then they ask the reader what their reaction would be to those dilemmas. Making it an almost interactive book, without getting you to exercises like "get a notebook and right the top-ten...". I do not like those exercises other books have since I tend to read in places where I cannot write, at the airport, in my bus commute, in bed.

I am a very avid reader of personal finance books, I'm also a CPA. The nice part about this book is that it was beyond the technicalities of money decisions. And puts them in a perspective that is very helpful, and also that any human being can relate and understand, without needing a financial background.

I consider myself very unemotional when it comes to money decisions, so starting to read the book I was a bit cocky about my expectation. You know, I thought to myself "this might be a book for all those people that go buy stuff, just because is on sale, not because they need them" and things of that sort. To my surprise I found myself guilty of many of the traits that are part of being human. This I found, thought me a lot of lessons. I will not say the book has "fixed" me. But it certainly has made me more aware of my thinking process, which ultimately helps on getting a better perspective.

I'm typing this review several months after having read this book. I just stumbled over it here at Amazon, and thought that it was worth of my first ever review.

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Anyone interested in knowing why they can't save enough, read this book

Man, if only I read this book 15 years ago, I would have saved my self tens of thousands (possibly hundreds of thousands in lost investment opportunities)!! I learned the hard way that not paying attention to money is a good way to go broke and in debt.

This book pointed out many of my problems that I had and still have. I was very surprised to find that I succumbed to many of the problems that Belsky says are the root of many people's money problems. For example, treating money in different accounts differently and treating differently money that's earned in different ways. For example, I have always had a savings account that I use only for emergencies, so treated this money as sacred. Also, any money I've ever won gambing or been given as a gift, I spent more freely than money I earned as income.

Belsky, rightly, points out the foolishness of this. A dollar earned doesn't buy any less or more than a dollar won or received as a gift, so why treat it differently. One thing that I have learned is that any money that you can set aside in savings is money that should be used to pay off credit cards. Money sitting in an account isn't really doing that much for you, but balances on a credit card will eat at any attempts you make on getting your finances in order. This took me a long time to learn (see first sentence in review). I, finally, had to cut up my credit cards, then I drained my savings to pay off as much as I could, then paid off the rest as fast as possible.

I have a dividing interest in economics, but that science is limited due to the basic assumptions it makes. This is why behavioral economics was developed. Behavioral economics takes a stab at filling in the gaps the micro and macroeconomics just can't answer. Belsky gives a lucid account of current findings.

If you are having problems figuring out what's wrong with your finances (i.e., your money habits) you need to read this book. Learning the hard way is too expensive. And the hard way won't teach you everything you should know and you might learn the wrong lesson.

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A useful book

This book does a good job of debunking the myth that people act in economically-rational ways. It discusses how investors tend to be overconfident in their ability, how the first price they hear "anchors" their perspective on what an appropriate price is, how people tend to follow the crowd, etc.

The book does a good job with setting forth various vignettes, then discussing the underpinnings for the behavior or conclusions reached, then helping the reader apply that to their own behavior. As such, it is quite useful insofar as it enables the willing reader to identify the mistakes they make and gives some means to correct them. The book combines mathematical and psychological elements quite well. For example, it discusses how we tend to overlook the "small" details that aren't really that small.

I got a lot out of this book. Specifically, I hope to correct my loss-avoidance tendancies using the advice given in this book (the authors point out that a dollar is a dollar, regardless of how earned - and if you lose money on an investment, that investment is worth the reduced amount - you can't "anchor" back to the value of your initial investment).

This book is one of several good ones out there that deals with behavioral finance. It is not a "hands on" book that will tell you how to identify a particular investment, and some readers will surely be offended that the book says investors might be best servd by investing in index funds. However, it should help identify and fix some tendancies that may impair long-term investment performance.

Another good read on this topic is Paulos' book "A Mathematician Plays the Stock Market." For a discussion of the possible pitfalls of behavioral finance, read Mauboussin's "More than What You Know." For a book that applies behavioral finance to identify potential investments, read Dreman's "Contrarian Investing Strategies: the Next Generation."

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A little dated but useful to keep in mind

Sobering, well written, and well-reasoned, like "How we know what isn't so". Good bits of advice I will at least need to consider (about insurance in particular).

This book was clearly written from the perspective of a booming stock market. I am not sure how long behavioral finance/economics has been around, but hopefully they have something better than "buy and hold an index fund" buy now.

Although, this is extrapolating from very little data, there have been 15-18 year flat times for a stock market, and we seem to be 5 years into one of those. I wonder how much data it took to believe that the sun will rise again. As long as we are beating the S&P 500, don't overtrade, and don't have too much money in high volitility stocks/options, we should be OK. Then again, maybe I'm deluding myself.

I think we should be careful to know the value of a thing and not just the price. The authors find it mysterious that people wouldn't want to switch places with someone who has a "better" life. There are some things for which making a universal objective metric makes little sense. But, I am probably begging the question here.

I think this book is good overall. It gives you specific psychological traps to avoid. At least you'll think twice before walking into one.

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A good place to give your investment strategy a logic check

This book takes some relatively heady behavioral economic ideas and applies them to everyday investment scenarios. No one is going to create a black box trading model using this book alone, but it does provide some sound principles for every investor (from novice through expert) to use as tests for cognitive and behavioral biases. Definitely worth a read, and very readable.

reviews: 1, 2, page 3, 4, 5, 6, 7, 8, 9, 10

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