This book is written in a conversational style which is quite easy to understand, while delivering much sound advice related to investing and financial planning. The advice is of a general nature and focused on overcoming our inherent psychological tendencies which can cause us to make poor decisions, so I can recommend the book to all investors, ranging from novice to veterans.
Here are my notes from the book:
1. Cycles and other factors do cause markets to go to ‘inefficient’ high and low extremes.
2. Stocks should be treated as potentially useful, but also dangerous. And increased potential upside does generally come with increased risks (but the converse isn't true: higher risk doesn't always mean increased potential upside).
3. In the long run, the vast majority of people who attempt market timing do worse than the markets, and we shouldn’t fall prey to the hope that we can rely on others to make such predictions. So it’s best to formulate an approach which will likely work well long-term regardless of how markets fluctuate in the short and intermediate terms, since the long-term trend is up; but this does assume that the future will repeat the past in the long-term, whereas there have been bear markets of more than a year in the past, so 'riding out' long bear markets can be a painful process which wouldn't be a good situation for people nearing retirement or already retired.
4. The most effective investors are moderate and humble rather than overconfident, and recognize their inability to reliably make accurate predictions. In fact, people with the highest proportion of accurate extreme forecasts tend to do worse overall. And because of the lack of predictability, rather than trying to adhere to rigid long-term plans, we should take a more flexible approach of adapting to evolving circumstances by making small but consistent course corrections. This means that we need to pay attention to what’s happening in timeframes of weeks and months in order to make decisions which will tend to work well over years, while ignoring intraday or day to day fluctuations, and recognizing that sometimes doing nothing is the best option.
5. Following the herd and doing what’s popular will usually mean buying rather than selling when markets are high, and selling rather than buying when markets are low. Ironically, people who are relatively disciplined and really try to stick to their plans are most vulnerable to this, because they’re among the last to 'give in' and buy (near tops) and among the last to sell (near bottoms). 'Safety in numbers' isn't a valid maxim for investing.
6. Financial planning is part of life planning, and needs to be personalized – what’s suitable for one person may be unsuitable for another. Generally, we should only take as much risk as needed to meet our financial goals (rather than trying to maximize return and thereby taking on unnecessary risk), while keeping in mind that additional money has diminishing value in terms of enhancing our lives once we reach upper middle class (personal relationships, experiences, and the feeling of doing worthwhile work matter more, once our basic needs are met). The harm we suffer from a major loss is usually greater than the benefit we derive from a major gain, so loss aversion makes sense.
7. Because of regression to the mean and the role of luck, funds which performed well in the past are less likely to do well in the future. Unlike most other fields, in investing, past performance is NOT a reliable indicator of the future, and may even be a misleading indicator. The only consistent correlation is that funds with higher expense ratios tend to perform more poorly.
8. Because of good and bad luck, sometimes bad decisions will result in good outcomes, and good decisions will result in bad outcomes. Rather than being mislead by that, we need to stick to approaches which are likely to work longer term.
9. Most of what’s reported in the financial media is just noise, and is best ignored. Try to keep your models simple and robust. That doesn’t mean we should ignore important developments on large geographic scales, but we should accept that context as ‘given’ and focus our financial planning decisions on where we can have an influence.
10. A good test for evaluating a portfolio is to imagine being in cash and then asking how similar and different your portfolio would be if you reconstructed it. Don’t keep things the same just because of wanting to preserve the status quo, attachments, laziness, or wanting to ‘break even’ on an investment. A portfolio should be evaluated based on anticipated long-term future performance, not what has happened in the past to get to this point.
11. Don’t fall prey to hindsight bias and compare your current portfolio value with a previous peak, as though the portfolio is at a 'loss' compared to that. Such extremes aren’t meaningful reference points. Instead, look at rate of return over longer timeframes. (It's not mentioned in this book, but given that the long-trend of markets has been upward, buying low is a better and generally safer strategy than trying to sell high. And of course, things will usually look bleak - 'blood in the streets' - when markets reach lows.)
12. If an investment option looks too good to be true, it probably is. Scrutinize such options intensively.
13. Investing should be done dispassionately, rather than approached as an entertaining game. This will generally lead to better decisions. If you sense that you’re about to make an impulsive decision, sleep on the decision for one or more nights before deciding.
14. Take responsibility for all of your investment decisions, rather than selectively taking credit for gains and blaming others or situations for losses.
15. Don’t be penny wise and pound foolish in making financial decisions. Maintain perspective on what really matters by considering absolute dollar amounts, and prioritize your time accordingly.
Download the free Kindle app and start reading Kindle books instantly on your smartphone, tablet, or computer - no Kindle device required.
Read instantly on your browser with Kindle for Web.
Using your mobile phone camera - scan the code below and download the Kindle app.
Something went wrong. Please try your request again later.
Book recommendations, author interviews, editors' picks, and more. Read it now
Frequently bought together
$23.99
Get it as soon as Tuesday, May 21
Only 1 left in stock - order soon.
Total price:
To see our price, add these items to your cart.
Choose items to buy together.
Similar items that may deliver to you quickly
Page 1 of 1 Start overPage 1 of 1
Videos
Page 1 of 1Start OverPage 1 of 1
Videos for this product
0:46
Click to play video
HONEST REVIEW - The Behavior Gap by Carl Richards Book
DaveDoesReviews
About the author
Follow authors to get new release updates, plus improved recommendations.
Reviews with images
Verificar la calidad
It is a good book I have not finished reading it yet but the information makes sense. a little disappointed that the paper is not hard and it comes out of the book when you are reading.
Top reviews from other countries
vishal bansal
A must read for anyone who has anything to do with money
Reviewed in India on April 10, 2022
Giovanni
Simple but not easy; a complete guide to avoid the behavior gap
Reviewed in Mexico on February 20, 2020Federico
Easy to read, enlightening and inspirational
Reviewed in Italy on December 12, 2020Rod Tyler
I like the book so much I am about to read ...
Reviewed in Canada on April 18, 2015