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David Merkel
David Merkel
Articles (5983) 

Book Review: What Investors Really Want

December 18, 2010

Meir Statman wants to tell us about the human condition. We make bad economic decisions regarding investments. That comes mostly from having multiple desires regarding investing that are inconsistent. What are our problems?

  • We look for free lunches.
  • We think he past is prologue.
  • We get hopeful.
  • We want to look like a winner for friends.
  • We follow the herd.
  • We are reckless with money not easily earned.
  • We save too little.
  • We want an option on riches, and a guarantee against poverty.
  • We are loss averse.
  • We are tax averse.
  • We want to be accepted into exclusive investments.
  • We want our investments to reflect our values.
  • We want fairness.
  • We want our progeny to thrive.
  • We don’t know what we are doing, can someone teach us?
The spirit of the book says to me that most people don’t have the vaguest idea on what to do with investments. They invest for many reasons, many of which are not economic.

This is a reason why pension plans should strip the investment authority away from participants, and put it in the hands of trustees. Face it, only 20% of people at most know how to invest. Amateurs have a hard time distinguishing between the long-run and the short-run.

My take is that one has to unemotional, Vulcan-like, in investing, in order to be successful. Our feelings, whether of fear or greed, deceive us. We must resist and suppress our feelings in order to be good investors. And as for me, it took me 5-10 years to get there. By the time I was done, I created a system that tied my hands when I would be tempted to make a rash decision.


Page 84 demonstrates how short-sighted people pay up for flexibility, paying credit card rates for extra cash. On pages 96-97, he managed to convince me by bad arguments that the old system of segregating capital and income is correct. Truth, a market-base spend in rule would float with the 10-year Treasury yield, with adjustment for how optimistic we are about the stock market. Unless the income taken from an endowment floats with the market, it is not possible to be fair across eras.

The book describes our problems in economic decision-making, but provides no cure. The last chapter tries to make up for it, by suggesting that an intelligent mix of paternalism and libertarianism would be the best solution.

Yes, that would be the best solution, but the devil is in the details, and the author spells out few of them.

Who would benefit from this book:

Anyone wanting to understand why he makes bad economic decisions would benefit from this book. That would include most of us, and me. As you read it, think of how you would change your behavior for your good. Personally, I have designed my buying and selling methods in the stock market to avoid these troubles, but it means I have to have no emotions in the market, and that is tough to do.

If you want to, you can buy it here: What Investors Really Want.

Full disclosure: This book was sent to me, because I asked for it.

If you enter Amazon through my site, and you buy anything, I get a small commission. This is my main source of blog revenue. I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip. Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book. Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website. Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites. Whether you buy at Amazon directly or enter via my site, your prices don’t change.

David Merkel


About the author:

David Merkel
David J. Merkel, FSA, CFA, is the Chief Economist and Director of Research of Finacorp Securities. His specialty is looking at the interlinkages in the markets in order to understand individual markets better. He holds bachelor’s and master’s degrees from Johns Hopkins University. In his spare time, he takes care of his eight children with his wonderful wife Ruth.

Rating: 5.0/5 (3 votes)


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