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Book Summary: Value Investing and Behavioral Finance Book PDF
Value Investing and Behavioral Finance by Parag Parikh is a book that explores the concepts and applications of value investing and behavioral finance in the Indian stock market. The book aims to help investors overcome their psychological biases and make rational and profitable investment decisions.
The book is divided into 12 chapters, each covering a different aspect of value investing and Behavioral finance. The book covers topics such as:
- The reasons why most investors fail and how to avoid common pitfalls
- The understanding of human behaviour and emotions that influence investment choices
- The behavioural obstacles to value investing and how to overcome them
- The contrarian investing approach and how to identify undervalued and overvalued stocks
- The growth trap and how to avoid paying too much for high-growth stocks
- The commodity investing and how to benefit from the cyclical nature of commodity prices
- The public sector units and how to evaluate their performance and potential
- The sector investing and how to diversify and balance the portfolio across different sectors
- The initial public offerings and how to avoid the hype and speculation surrounding them
- The index investing and how to take advantage of the passive and low-cost strategy
- The bubble trap and how to recognize and avoid the signs of market bubbles
- The investor behaviour-based finance and how to use the insights from behavioural finance to improve investment outcomes
The book is written in a simple and clear language, with references to classical texts and modern research. The book also provides examples and case studies from the Indian stock market, as well as practical tips and tools for investors.
The book is suitable for students, practitioners, and enthusiasts of value investing and behavioural finance, as well as anyone who wants to learn more about this ancient and holistic system of investing.
You can download the Value Investing and Behavioral Finance Book PDF through the link given below.
Excerpts From the Book
UNDERSTANDING BEHAVIORAL TRENDS
Equities are considered inherently riskier than investments in bonds. What makes equity investing risky? Is it because of the inconsistent performance of businesses behind the stocks or is it because of the behavior of the market participants, who as a result of greed and fear get excessively optimistic and pessimistic about the future resulting in bull and bear phases?
In this chapter we have tried to answer these questions using a conclusive study done on Sensex which highlights that it is not the inconsistent performance of companies constituting Sensex but the follies of crowd behavior which make investing risky.
Understanding the behavior of stock market participants is central to designing a successful investment strategy. It would be fit to mention Daniel Kahneman and Amos Tversky, the proponents of the Prospect Theory and the winners of Nobel prize for their research in behavioral finance. Their work has been of immense help to me.
BEHAVIORAL OBSTACLES TO VALUE INVESTING
In 2001, I attended a course, “Investment Decisions and Behavioral Finance”, at the Kennedy School of Government at the Harvard Business School. I was impressed by a talk by Christopher Browne on value investing and behavioral finance. Again, his speech on the same at the Columbia Business School on 15 November 2000 was an eye-opener for me.
This instilled in me the courage to expand my knowledge in this burgeoning field. I was excited by the opportunities the markets would offer if one was able to control one’s emotions. Which investment style has historically outperformed other styles? What are the traits that distinguish successful investors from others? What role does emotional discipline play in successfully implementing an investment strategy?
What are the behavioral traits that act as impediments in achieving investing success? These are the questions that have been answered in this chapter. Just as it helps to understand the rules of any game to become victorious, it helps to understand the characteristic traits that make a successful investor. Drawing upon the wisdom of Christopher Browne on value investing and behavioral finance I have tried to explain the obstacles faced by value investors.