I think you’ll agree with me when I say:
It’s REALLY hard to act as a rational investor your entire life.
Investing in anything means moments of doubt, questioning your decision making, and yes, accepting losses.
But does it have to be?
Well, it turns out, there’s a lot of exciting new research in the field of behavioral finance.
Unfortunately, studying behavioral finance will not help you eliminate mistakes. Instead, it allows you to prevent the losses that could really hurt you.
Charlie Munger has said, “You can learn to make fewer mistakes than other people- and how to fix your mistakes faster when you do make them.”
And that’s the goal when it comes to studying behavioral finance.
In today’s post I’m going to share with you the best behavioral finance books, starting with a book about Munger himself.
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Best Behavioral Finance Books
Seeking Wisdom: From Darwin to Munger by Peter Bevelin
Munger not only takes the best concepts from his field of investing. He also has takes the best concepts from fields like physics, psychology, and mathematics.
In Seeking Wisdom: From Darwin to Munger author Peter Bevelin explores how great minds such as Darwin, Munger, Buffett, Einstein, and Feynman others have gone about decision making.
The Little Book of Behavioral Investing: How not to be your own worst enemy by James Montier
Successful portfolio manager James Montier gives his readers an easy to understand guide on avoiding mistakes in The Little Book of Behavioral Investing: How not to be your own worst enemy.
As with most books written in the “Little Book” series, the book is easy to understand and the ideas are very actionable (or in this case, unactionable).
See also: Books Recommended by James Montier.
Misbehaving: The Making of Behavioral Economics by Richard H. Thaler
An author of five different books of behavior finance, as well as The Professor of Economics and Behavioral Science at the University of Chicago’s Graduate School of Business–Richard Thaler’s work is well respected in the field.
His latest book Misbehaving: The Making of Behavioral Economics by Richard H. Thaler, combines his years of research into one excellent book.
Thinking, Fast and Slow by Daniel Kahneman
Daniel Kahneman, the winner of the Nobel Prize , wrote a book a that’s the considered the most useful explanation of how the mind works.
In Think, Fast and Slow Kahneman breaks our thoughts in System 1 and System 2 thinking. By understanding these systems of thinking, we can help shape our judgments and decisions
Extraordinary Popular Delusions & the Madness of Crowds by Charles Mackay
Originally published in 1841 Extraordinary Popular Delusions and the Madness of Crowds shows that economic bubbles have existed long before the stock market.
With stories from the famous bubbles such as The Mississippi Company, South Sea Company, and Tulip Mania, Mackay provides plenty of insight into how humans have committed financial folly over time.
What makes this book so popular today is that history has shown to repeat itself. Whether the internet bubble of the late 90’s to the housing crash in 2008, the same principles of human behavior are around today.