New book aims to change investor thinking

21-Jun-2016

By Jerome Doraisamy

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A new book has compiled 12 detailed strategies for financial advisers, fund managers and consultants to aid them in managing and combatting behavioural biases in order to help their clients get ahead in the investing world.

Applying Behavioural Finance in Australia, authored by Behavioural Finance Australia (BFA) director Simon Russell, aims to combine international research and insights with Russell’s personal experience in the finance sector to provide guidance on behavioural patterns that affect investing.

Speaking with financialobserver, Russell said the motive behind the book was to give advisers and investors practical advice to overcome and in some cases take advantage of unconscious biases.

“A lot of the biases exist and continue to do so because we don’t get the feedback that we need,” he said.

“If you get the right feedback, you’ll see positive patterns with your investments.”

He said the strategies put forward were not intended to be tricky, but rather to explain plainly how to understand and implement the biases positively.

These included how best to capture benefits of market anomalies from the behavioural biases of other investors, such as factors that affect the value, volatility and quality of products in the market.

Additionally, the book discusses how to manage biases that arise in decisions that impact on even sophisticated financial players, including which stocks to sell, how to effectively create diversification, market timing and making financial forecasts and predictions.

Furthermore, advice is offered to those who outsource their investment planning and strategies, with guidance provided on how to assess advisers and whether or not to outsource the work at all.

The end result, Russell said, would be less cost and better returns as investors were able to more strategically target investments in accordance with the biases.

“If you are getting better returns over the long term, it makes a massive difference to having a financially secure retirement,” he said.

The launch of Russell’s book furthers the work of BFA in this sphere, which includes a consulting service introduced last year that helps advisers implement behavioural finance insights into their businesses so as to better communicate and engage with their clients and have more effective long-term financial decision-making.

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