PART SIX

Behavioral Investor Types

The last section of the book, Chapters 26 and 27, bring us to the section that ties together many of the concepts learned in the book. In these two chapters, I introduce a new concept I developed to make behavioral finance easier to apply in practice. The main idea is that people fall into four basic types of investors, and the distinguishing characteristics of the four types are the biases they have when making investment decisions. More specifically, we are trying to identify the biases that dominate one's investor personality. As you will see, there are biases that are associated with each type; however, it is important to realize that just because investors are specific types, they aren't necessarily exempt from the biases of other types. Behavioral Investor Types (BITs) or BITS as I call them, are meant to help both investors and advisors quickly identify who they are dealing with and how best to avoid common mistakes associated with that specific type. Chapter 26 goes over the process of identifying each type and Chapter 27 goes into more detail about each type.