RISK FINANCIAL MARKETS & YOU

YOUR GUIDE TO MAKING BETTER INVESTMENT DECISIONS

Financial industry veteran Fustey explains how a naïve view of risk and faulty decision-making leads investors down the road to disappointment.

If common sense says to “buy low, sell high,” then why are so many individual investors stymied by investments that fail to live up to their expectations? Fustey argues that much of the problem lies in the investor’s brain. Pointing to research from the fields of neuroeconomics and behavioral economics, the author describes the battle between our “two minds,” where our evolved “logical brain” and our more primal “automatic brain” compete for dominance while making decisions. The conundrum is made worse by the fact that humans do not always process information correctly. The book adeptly catalogs the biases and mental shortcuts that can distort our perception of risk. Trading based on news reports and a tendency to follow the herd are just two mindsets that can negatively impact investment decision-making. Fustey also lambastes two prevailing investment theories—the Efficient Market Theory and the Modern Portfolio Theory—as flawed. His criticism extends to the financial-advice industry and actively managed investments such as mutual funds, which he contends are riddled with hidden costs, conflicts of interest and self-serving tactics that exploit investor weaknesses. Perhaps the book’s biggest warning is to avoid “chasing past returns”; too many investors mistakenly believe an investment’s past returns can predict its future performance. A novice may be intimidated by the complex financial concepts covered in the book, but the author manages to express his views in everyday language bolstered with supporting evidence. Fustey ultimately proposes a practical, though not effortless, solution—combining exchange-traded funds with the strategic use of puts and calls to hedge against damaging losses. As with everything in the investing world, the book’s arguments likely will be disputed by other financial experts. At the very least, however, it can prompt the average investor to ask tougher questions when his financial advisor pitches another mutual fund that seems like a sure bet. Persuasive, no-holds-barred advice that will lead investors to rethink where they put their nest eggs.

 

Pub Date: Aug. 29, 2011

ISBN: 978-1463525897

Page Count: 221

Publisher: CreateSpace

Review Posted Online: Sept. 27, 2011

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Striking research showing the immense complexity of ordinary thought and revealing the identities of the gatekeepers in our...

THINKING, FAST AND SLOW

A psychologist and Nobel Prize winner summarizes and synthesizes the recent decades of research on intuition and systematic thinking.

The author of several scholarly texts, Kahneman (Emeritus Psychology and Public Affairs/Princeton Univ.) now offers general readers not just the findings of psychological research but also a better understanding of how research questions arise and how scholars systematically frame and answer them. He begins with the distinction between System 1 and System 2 mental operations, the former referring to quick, automatic thought, the latter to more effortful, overt thinking. We rely heavily, writes, on System 1, resorting to the higher-energy System 2 only when we need or want to. Kahneman continually refers to System 2 as “lazy”: We don’t want to think rigorously about something. The author then explores the nuances of our two-system minds, showing how they perform in various situations. Psychological experiments have repeatedly revealed that our intuitions are generally wrong, that our assessments are based on biases and that our System 1 hates doubt and despises ambiguity. Kahneman largely avoids jargon; when he does use some (“heuristics,” for example), he argues that such terms really ought to join our everyday vocabulary. He reviews many fundamental concepts in psychology and statistics (regression to the mean, the narrative fallacy, the optimistic bias), showing how they relate to his overall concerns about how we think and why we make the decisions that we do. Some of the later chapters (dealing with risk-taking and statistics and probabilities) are denser than others (some readers may resent such demands on System 2!), but the passages that deal with the economic and political implications of the research are gripping.

Striking research showing the immense complexity of ordinary thought and revealing the identities of the gatekeepers in our minds.

Pub Date: Nov. 1, 2011

ISBN: 978-0-374-27563-1

Page Count: 512

Publisher: Farrar, Straus and Giroux

Review Posted Online: Sept. 4, 2011

Kirkus Reviews Issue: Sept. 15, 2011

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A readable, persuasive argument that our ways of doing business will have to change if we are to prosper—or even survive.

REIMAGINING CAPITALISM IN A WORLD ON FIRE

A well-constructed critique of an economic system that, by the author’s account, is a driver of the world’s destruction.

Harvard Business School professor Henderson vigorously questions the bromide that “management’s only duty is to maximize shareholder value,” a notion advanced by Milton Friedman and accepted uncritically in business schools ever since. By that logic, writes the author, there is no reason why corporations should not fish out the oceans, raise drug prices, militate against public education (since it costs tax money), and otherwise behave ruinously and anti-socially. Many do, even though an alternative theory of business organization argues that corporations and society should enjoy a symbiotic relationship of mutual benefit, which includes corporate investment in what economists call public goods. Given that the history of humankind is “the story of our increasing ability to cooperate at larger and larger scales,” one would hope that in the face of environmental degradation and other threats, we might adopt the symbiotic model rather than the winner-take-all one. Problems abound, of course, including that of the “free rider,” the corporation that takes the benefits from collaborative agreements but does none of the work. Henderson examines case studies such as a large food company that emphasized environmentally responsible production and in turn built “purpose-led, sustainable living brands” and otherwise led the way in increasing shareholder value by reducing risk while building demand. The author argues that the “short-termism” that dominates corporate thinking needs to be adjusted to a longer view even though the larger problem might be better characterized as “failure of information.” Henderson closes with a set of prescriptions for bringing a more equitable economics to the personal level, one that, among other things, asks us to step outside routine—eat less meat, drive less—and become active in forcing corporations (and politicians) to be better citizens.

A readable, persuasive argument that our ways of doing business will have to change if we are to prosper—or even survive.

Pub Date: May 1, 2020

ISBN: 978-1-5417-3015-1

Page Count: 336

Publisher: PublicAffairs

Review Posted Online: Feb. 17, 2020

Kirkus Reviews Issue: March 15, 2020

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