Behavioral Finance Ebook Cover

CCR is pleased to announce the release of our newest educational material: a 35-page e-book on the complex but highly intuitive topic of Behavioral Finance, written by John Maher, CFA and CIO.

Now, you might be scratching your head and asking what Behavioral Finance is and why it's so important as to warrant its own e-book. Behavioral Finance (sometimes called Behavioral Economics) is the study, and cataloging of, the many sub-optimal decisions individual investors commonly make. Think of it as the way we (you, me, top-tier investors, etcetera) view, react to, and make decisions about finances. Our increasingly complex digital economy and digitally-connected world has made it exponentially difficult to parse the wealth of information at our fingertips, and by consequence, has provided many opportunities for even the most thoughtful investors to act reflexively rather than rationally. In other words, even the most seasoned and learned investor can get caught up in their head and make an impulsive decision rather than a logical one.

Makes sense, right? The concept is something I'm sure most would agree is important, but it begs the question: how does Behavioral Finance relate to you in particular? How will learning about Behavioral Finance benefit you, your finances, and your investments? Well, it just may help in more ways than you realize. Emotions and cognitive limitations combine to cause investors to consistently: overestimate low probability outcomes, underestimate risk, and conflate risk and volatility in the markets. In the e-book, we frequently refer to the Dalbar Quantitative Analysis of Investor Behavior, a study which has shown over the last several decades that the average investor earns less—in many cases much less—than what mutual fund returns and market performances would suggest.

The topic of Behavioral Finance is complex, highly-nuanced, and encompasses a vast array of behavioral biases; however, we do not attempt a comprehensive review within the e-book. Rather, we have drawn on our own decades of experience to introduce the topic at its core and in its most understandable form, with which we as advisors have had personal and repeated experiences. Our objective is to make our clients and investors aware of these breaches in logic, and hopefully, by slowing down the thought process a bit, improve their investment outcomes.

That said, we hope you find the attached e-book interesting and—more importantly— informative. If you have any feedback or additional questions, please reach out to us via the information below.