Nl bfm january 2012

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<ul><li> 1. 2010-2011 BFM Newsletters Summary Founders word Happy New Year! To begin 2012 with all the tools you may need, BFM created for you this compilation of all the newsletters of 2010 and 2011. You will discover or rediscover the valuable information BFM gathered under three major themes: A, B, C. To know more about a specific subject you can also refer to the next summary: Understanding Behavioral Finance-Rationality &amp; Decision Making...2 Humans cant analyze all the information received.........2 Challenges in Financial Advising From the Scope of Behavioral Finance..4 Investment Decision Making..............4 Countries and Culture in Behavioral Finance.....4 Human Brain and Decision-Making..5 Train Your Brain to Win Big.6 Be Aware of your Emotions - Step Away from Yourself - The Flaws of our Financial Memory.6 So Thats Why Investors Cant Think for Themselves...7 How to Pick Better Mutual Funds?...8 Performance May Lower your Returns....11 Lets Put Things in Perspective....12 Appendix.........15 January 2012 2012 Bourbon Financial Management, LLC ~ All Rights Reserved ~ ~ (+1) 312 909 6539 1 </li> <li> 2. Understanding Behavioral Humans cant analyze all the Finance-Rationality &amp; information received Decision Making Behavioral Economics explains how the Please find below a one-minute video.process of decision making functions amongcommon people. It elaborates on the role ofemotions and vision. Video: Selective Attention Test We use vision more in the day than we doanything else, so we are good at it. But thetruth is that our vision tricks us. If we havethese repeatable mistakes in vision which we This video shows that human attention isare good at, what are the chances we dont limited and that we cant analyze all themake more mistakes in that we are not good information we, ex. financial decision making?Do you want to know how powerfullyillusive our vision is and how it dominates We tend to pick the information that weour decisions? need to prove that our thinking is correct. If we are bullish and long the financial market, we tend to read bullish reports. Individuals See the entire Newsletter at: Newsletter, January 2011 have a tendency to simplify decisions (good company -&gt; good investment, momentum strategies -&gt; chasing performance). Furthermore, investors believe their information is correct and they are better at If you want to learn more about interpreting information and making behavioral finance and the role of decisions. We have an inability to fully Psychology, here is a long and incorporate new information into risk and popular video (viewed 28,000 return forecasts. The failure to recognize the times!) of a class of Robert Shiller, true risk of an investment makes us trade Professor of Economics at Yale more frequently than can be justified by the University. information. Also, we tend to remember only the good decisions so our memories Behavioral Finance : The Role of dont disagree with our opinion on our Psychology abilities. Refer to We are all Predictability Irrational - Dan Ariely on YouTube link: We are All Predictably Irrational 2 </li> <li> 3. See More tricks at: The Human Braintricks us whenever it can! 3 </li> <li> 4. Challenges in Financial Investment Decision Advising From the Scope of Behavioral Finance Making In todays world, especially after the recent Since many of you like Behavioral Finance financial meltdown, understanding the research to help you improve your decision human emotions and sentiments before making process, investing money is capturing interests of researchers and advisers. We too continue our long love with Behavioral Finance and present you some interesting findings by Please find the Newsletter researchers in this area. Investment Decision Making at: Newsletter, May 2011 Please see the Newsletter to learn more about: Newsletter, July 2011 You will find some information about: Intuitive and Reflective Minds Asset Allocation Investor Paralysis Information Overload Lack of Investor Discipline The Effect of Myopia and Loss Aversion on Risk Taking Regaining and Maintaining Trust Making Intelligent Decisions Overcoming Loss Aversion The practices that an investor Overcoming Procrastination should try to follow The Ulysses Strategy Some things that an investor should try not to engage in Countries and Culture in Behavioral Finance Have you analyzed why Chinese exhibit higher risk tolerance than Americans? Have you ever wondered how Muslims invest money? And did you know a countrys corruption level has an impact on its own diplomats? Asians, Americans, Europeans, Africans, Australians The world is a mix of people from these continents with different ideologies and cultures. But what is fascinating is that there is something which is common between these diverse cultures. Guess what? It is MONEY! Find all the answers at: Newsletter, June 2011 4 </li> <li> 5. We can summarize some of the practices that should be followed: Financial advisers need to probe their clients more about their culture. Also important is to know the clients obligations towards others. Individualistic and collectivistic groups have different styles of thinking. This reflected in their investment decisions. Continuously strive to learn more about investing. Understand the complexities in investing. The adviser will have to do more research and be sure that he does not fail his fiduciary duty. Saving rates depend a lot on culture. It is important to understand your culture before you make investment decisions. Higher saving rates cultures are more risk tolerant that low saving rate cultures. Many investors exhibit different abilities and willingness towards risk. Always honor the willingness to risk because the investor feels comfortable if his risk level is under his/her control. Human Brain and Decision-Making We can point to some general practices that can Avoiding making any important investmenthelp investors improve their investment decision decision while being in a passive state ofmaking: mind. Thinking more analytically when making important financial decisions. Creating a balance between being patient and being dynamic about investment choices. Being pro-active, curious and non- assumptive at all times and spending time to evaluate investments, possible risks and benefits. Lets see the Newsletter Human Brain and Decision-Making for Continuously striving towards improving more information, August 2011 self-control and avoiding hastiness. 5 </li> <li> 6. Be Aware of your Emotions Train Your Brain to Win Big - Step Away from Yourself - The Flaws of our Financial Memory When Playing the investing game, its easy to let your impulse make all the wrong See the entire Newsletter at: moves. Learning to trick yourself can help. Newsletter, November 2011 Why do smart people do such stupid things with their money? The answer often lies in neuroeconomics, a hybrid of neuroscience, Be aware of your own emotions economics, and psychology that drills down and cognitive traps to make smarter to the biological bedrock of decision-...</li></ul>