by Albert Mehrabian

Reviewed by Ed Dobson, President, Traders Press, Inc.

Dealing with investments of all types involves the making and losing of money. And, it arouses the strongest of emotions. Many highly qualified persons work diligently at investing year after year, learning more as they go along, but fail to produce returns commensurate with their knowledge and efforts. Meanwhile, others may be less knowledgeable but are able to develop strategies that work well and are highly successful, amassing great wealth from their investments.

As you will learn from this fascinating book, the difference between successful and unsuccessful investors is often explained by the way they react to and cope with the powerful emotions aroused by investing, which, in turn, is greatly influenced by their psychological makeup and awareness. Investment success or failure, we are told, is a function primarily of two factors:

The great majority (as much as 95 percent) of current investment literature deals with fundamental and technical issues. Very little is written on the psychological aspects of investing. This book is among the best I have seen on this topic.

We learn that one of the primary reasons investors do poorly is because of a mismatch between their temperament and the specific investments they choose. Successful investing requires a proper match between investor temperament and investment type. Another major influence on investors’ actions is their life circumstances, such as their social and work situations.

Much of this book involves an organized approach for investors to understand their own temperament. A comprehensive program of self-assessment teaches the reader how to gain detailed and accurate knowledge of his or her individual temperament, investment style and life circumstance. Then, it helps translate these assessments into lists of investment guidelines.

After learning the investment patterns typically associated with their temperament, readers can discover strengths and weaknesses brought on by their emotional characteristics and learn to choose investments in which they have the greatest chance of success.

Investments are ranked on the basis of the level of uncertainty that they involve. Low-uncertainty investments are characterized as simple, stable, changing slowly, expected and familiar (examples: Savings accounts, T-Bills, CDs). High-uncertainty investments are characterized as complex, varied, changing rapidly, unexpected and novel (examples: Trading in commodity futures; trading options).

Most investment difficulties arise when individuals become involved in higher uncertainty investments than they can deal with from an emotional standpoint. A main objective of the book is to assist investors in selecting levels of investment uncertainty with which they can live comfortably and profitably.

Increased awareness of the effects of temperament and emotions does not guarantee investment success. It goes a long way, however, toward selection of appropriate investments and investment strategies and toward consistent adherence to carefully conceived and intelligently formulated plans. This book will prove enormously helpful in enabling investors to gain a greatly increased level of awareness of their own individual psychological makeups.