Stocks for the Long Run : the Definitive Guide to Financial Market Returns and Long-term Investment Strategies

19

CHAPTER

BEHAVIORAL FINANCE AND

THE PSYCHOLOGY OF INVESTING

The rational man—like the Loch Ness monster—is sighted often, but

photographed rarely.

DAVIDDREMAN, 1998^1

The market is most dangerous when it looks best; it is most inviting

when it looks worst.

FRANKJ. WILLIAMS, 1930^2

This book is filled with data, figures, and charts that support an interna-

tionally diversified, long-term strategy for stock investors. Yet advice is

much easier to take in theory than to put in practice. The finance profes-

sion is increasingly aware that psychological factors can thwart rational

analysis and prevent investors from achieving the best results for their

portfolio. The study of these psychological factors has burgeoned into

the field of behavioral finance.

319

(^1) David Dreman, Contrarian Investment Strategies: The Next Generation, New York: Simon & Schuster,
1998.
(^2) Frank J. Williams, If You Must Speculate, Learn the Rules, Burlington, Vt.: Freiser Press, 1930.
Copyright © 2008, 2002, 1998, 1994 by Jeremy J. Siegel. Click here for terms of use.