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The cover of The Behavioral Investor

The Behavioral Investor

Daniel Crosby, 2018

Markets run on human brains that evolved for survival, not returns. Crosby names the four behavioral risks that cost investors money and the rules that contain them.

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14 parts, about 23 minutes to read.

Why read it

  • Argues that the biggest investing risk is your own behavior, sorted into four kinds: ego, conservatism, attention and emotion
  • Offers concrete defenses: diversify, pause before acting, test ideas three ways, automate, and set rules before markets turn
  • Blends brain science and market data into a rules based approach between passive indexing and discretionary stock picking

Who it is for

  • Individual investors who trade on headlines or gut feel
  • Financial advisers helping clients stay calm in downturns
  • Fund managers weighing rules against judgment

What the summary covers

  1. Markets Are Made of People2 min
  2. A Brain Built for Another World2 min
  3. The Body Gets a Vote1 min
  4. The Four Pillars of Behavioral Risk1 min
  5. Ego2 min
  6. Conservatism2 min
  7. Attention2 min
  8. Emotion2 min
  9. A Third Way: Rules Based Behavioral Investing2 min
  10. Why Rules Beat Judgment1 min
  11. Risk First2 min
  12. Luck, Skill and Good Rules1 min
  13. Value and Momentum2 min
  14. Knowledge Is Not Behavior1 min

Recommended by

  • Steven GoldsteinSenior Managing Director, Alpha R Cubed
    The Behavioral Investor is Daniel Crosby's brilliant new book which looks at how professional investors can improve and enhance their performance by better understanding the way their brains influence their behaviours and affects their investment practice.
  • Simon MooreChief Investment Officer at Moola
    ...a useful summary of an increasingly important field of investing. Our brains have not evolved fast enough to make us expert in many investment decisions, and being aware of these short-comings may help us, not to knock it out of the park as investors, but to avoid various more obvious mistakes that can often hurt our wealth.
  • Brenda JubinWriter of the Reading the Markets blog
  • Richard GillCFA and contributor to Master Investor
    ...Crosby is a master of his craft, a great storyteller as well as an academic, who can explain sometimes difficult concepts in simple terms and support his arguments with thought-provoking and entertaining commentary.

About the author

  • Daniel CrosbyFounder of Nocturne Capital who writes about behavioral finance
    • Educated at Brigham Young and Emory Universities; psychologist and behavioral finance expert
    • Founder of Nocturne Capital, an investment management firm rooted in behavioral finance
    • Constructed the Irrationality Index, a monthly sentiment measure of greed and fear
    • Named one of Investment News 40 Under 40 and a financial blogger you should be reading by AARP

Read it alongside

  • Pushes backThe Simple Path to Wealth

    Daniel Crosby says not to time the market but allows rare exits to cash by a mechanical rule such as a ten month moving average; JL Collins says nobody can time the market and urges staying invested and buying through crashes

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