MANAGING EQUITY PORTFOLIOS : A BEHAVIORAL APPROACH TO IMPROVING SKILLS AND INVESTMENT PROCESSES------PHI

Portfolio management is a tough business. Each day, managers face the challenges of an ever-changing and unforgiving market, where strategies and processes that worked yesterday may not work today, or tomorrow. The usual advice for improving portfolio performance—refining your strategy, staying within your style, doing better research, trading more efficiently—is important, but doesn’t seem to affect outcomes sufficiently.

This book, by an experienced advisor to institutional money managers, goes beyond conventional thinking to offer a new analytic framework that enables investors to improve their performance confidently, deliberately, and simply, by applying the principles of behavioral finance. It offers a conceptually straightforward and well-tested framework that measures key inputs in active portfolio management to management success like skills, process, and behavioral tendencies with evidence of how it helps managers enhance self-awareness and become better investors. In a series of short, accessible chapters, the author investigates a range of topics from psychology and neuroscience, describing their relevance to the challenges of portfolio management. Finally, the book offers seven ideas for improving. These range from maintaining an investment diary to performing rudimentary calculations that quantify basic skills; each idea, or “project,” helps managers gain a deeper understanding of their strengths and shortcomings and how to use this knowledge to improve investment performance.

The SEVEN IDEAS FOR IMPROVING PERFORMANCE are

• Embracing the Scientific Method • Maintaining a Diary

• Accounting for Skill • Learning about Buying Skill

• Measuring Your Sell Effectiveness • Calibrating Sizing

• Using Checklists

The book is useful for postgraduate students of management and professionals.

“The Disciplined Trader meets Moneyball. This book is a worthwhile read for any portfolio manager, analyst, or trader focused on continual improvement and even greater success.”

—Warren Touwen, Core Product, Bloomberg

“For fund managers seeking to improve their investing skills there are many publications offering tantalizing but fragmented paths for progress. In this book Michael Ervolini brings together topics such as fast and slow thinking, checklists, and self-awareness to construct coherent and pragmatic solutions. Using the principles of the scientific method he shows how a successful investment process can evolve through time, improving the consistency of decision making and keeping investing skills relevant in an ever-changing world.”

—Simon Savage, Asset Manager, GLG Partners

“Michael Ervolini is a clever man in touch with reality. Recognizing that portfolio management is a tough, challenging business full of conflicts, he gets it that rationality is easy to talk about but difficult to implement. It requires recognition of deep uncertainty and the human resource that is emotion. Since passive investing puts you at the mercy of the market, active portfolio management has to be made to work. It can be, Ervolini says, if there is proper feedback. It requires a willingness to be curious about what we do and to create ways to learn from experience. This is what he does in this book. Read it!”

—David Tuckett, Director, Centre for the Study of Decision-Making Uncertainty, University College, London

Contents:
Foreword by Terrance Odean
Preface
Acknowledgments
Introduction
Part One: Game Change
1. Industry Challenges
2. Why Johnny Can’t Improve
3. New Analytic Framework
4. Process and Behaviors
5. Feedback in Action
6. Phantastic Risks
Part Two: Behavioral Matters
7. What Drives Selling?
8. Sell the Way You Buy—Strategically
9. Bearing Up in a Bear Market
10. Aching Conviction
11. Unconscious Deliberation
12. Investing in Self-Awareness
13. Stressing Performance
14. Thesis, Narrative, or Just Another
Disappointing Story
15. Dreaming of Alpha
16. Motivated Reasoning
17. Regrettable Choices
18. Endowing Success
19. Counterfactual Investing
20. Great Investing is Not Natural
21. Inside-Out Investing
22. Beware Phantastic Investments
23. Thanks for the Memories
24. Skills, Process, and Behaviors
25. Processing Success
26. Primed for Success
27. Fear, Anger, and Risk
28. Successful Choices
29. Changing for the Better
30. Portfolio Thinking
31. Promiscuous Thinking
32. Getting in the Flow
33. Believing is Seeing
34. A Storied Portfolio
35. The Trouble with Improving
36. Tired Investing
37. That Winning Feeling
38. Hold That Thought
39. Overcoming Overconfidence
40. The Power of Vulnerability
Part Three: Improving Right Away
Project 1 Embracing the Scientific Method
Project 2 Maintaining a Diary
Project 3 Accounting for Skill
Project 4 Learning about Buying Skill
Project 5 Measuring Your Sell Effectiveness
Project 6 Calibrating Sizing
Project 7 Checklists
Epilogue
Glossary