Unbiased Investor

Make better financial choices, reduce money anxiety, and grow your wealth

In Unbiased Investor: Reduce Financial Stress and Keep More of Your Money, Portfolio Manager at CIBC World Markets, Coreen Sol, delivers an inspiring and illuminating roadmap to investing success. In the book, you’ll explore the behavioral and psychological roadblocks to achieving optimal results from your portfolio and the strategies you can use to overcome them. You’ll learn to focus on basic economic principles—rather than harmful psychological biases—to reduce financial stress and reliably grow wealth.

The book also shows you how to:

• Recognize the decision-making shortcuts (heuristics) we use to navigate and understand the world around us
• Avoid counter-productive and ineffective risk-management strategies that decrease returns without mitigating risk
• Consider your own financial goals, personal preferences, and skills in the creation of a strategy to make good financial choices, consistently

A powerful and easy-to-follow handbook for everyday investors, Unbiased Investor shows readers from all kinds of background the foundational, straightforward behaviors and habits we need to embrace to realize financial security.

Introduction: The Path of Least Resistance 1

Chapter 1 Making Sense of What You See 9

Anchoring: An Invisible Hand 9

Representativeness: If It Walks Like a Duck 15

Money Illusion: The Rule of 72 and the Risk of Inflation 20

Recency Effect: A Clear and Present Danger 23

Reversion to the Mean: That Makes Sense but Doesn’t Answer Anything 27

Availability Bias and Distortion: Overestimating What You Can Easily Recall 29

Familiarity Bias: Recognizing a Stranger 31

Proportional Money Effect: Why We Save Pennies Only to Neglect Dollars 35

Mental Accounting: Pigeonholing Money 37

Endowment Effect: Loyalty Reward Points are Not Free Money 40

Status Quo Bias: The Influence of Inertia 45

Chapter 2 Controlling Risk 49

Conservativism: Close but No Cigar 49

Gambler’s Fallacy: Heads or Tails? 51

Possibility and Certainty Effect: A Bird in the Hand Is Worth Two in the Bush 52

House Money and Break-Even Effect: What Just Happened? 56

Disposition Effect: The Worst Time to Lock in a Profit 59

Loss Aversion and False Risk Control: Ante Up! 61

Chapter 3 Wanting To Be Right 65

Overconfidence: We All Can’t Be Above Average 65

Hindsight Bias Is Convincing: I Knew It! 69

Cognitive Dissonance: The Grapes Were Sour Anyway 71

Confirmation Bias: Buying and Selling a Boat 73

Availability Bias, Recency Effect, and Real Estate: House Prices Always Rise, Right? 76

Sunk Cost: Why Camping Seems Affordable 81

Barnum and Forer Effect: A Fool Is Born Every Minute 86

Loss Aversion Undermines Your Beliefs: Trading Money for Sleep 89

Herd Mentality: Consensus Hurts Performance 91

Chapter 4 Developing Your Personal Economic Values 99

Why Commit to the Eight Steps? 99

Personal Economic Values Workbook 103

Chapter 5 Adopting Unbiased Habits 113

The Point of Impact 113

Don’t Take It Personally 117

Quantify Your Returns 119

Keep a Journal of Investment Decisions 121

The Power of SMT 122

Negotiations 124

Just Pick One 125

Automate, Outsource, and Schedule 127

Stop Checking Your Investments 130

Establish Investment Constraints 133

Stick to Your Plan 134

Reframing Decisions 135

No Safety in Numbers 136

Money Doesn’t Care Where It Came From 137

Craft Your Personal Investment Policy Statement (IPS) 138

I Knew-It-All-the-Time 145

Cut Your Losses 147

Trees Don’t Reach the Sky 148

In the Absence of Research 151

Be Average 153

The Unbiased Habit Checklist 155

Chapter 6 What An Investment Advisor Can and Cannot Do 161

The Bottom Line 161

Bull Markets and DIY 161

Is Passive Investing a Silver Bullet? 166

Intuition 169

Avoiding Hindsight Bias with Training 172

When to Trust Expert Investment Advice 175

Know What You Don’t Know 177

Bias Resistance 179

Portfolio Abandonment 181

Chapter 7 Can Money Buy You Happiness? 185

Happiness, Work, and Retirement 186

Happiness and Spending Money 191

Happiness and Gluttony 194

Health, Happiness, and Your Money 198

How Much Is Enough? 200

Notes 205

Index 209

COREEN SOL, Chartered Financial Analyst, has helped investors avoid the impact of behavioral bias during extreme market events for more than three decades. She brings a unique view that combines an academic perspective with a compassionate understanding of how people feel about money in the real world. Coreen is a former adjunct professor at the University of British Columbia Okanagan, manages a private wealth practice in British Columbia, Canada, and sits as a director on the board of CFA Societies Canada, an advocacy organization for investment integrity.

The world of investing is riddled with noise. Television personalities bark out their latest “hot tip.” Your neighbor rants about his recent foray into crypto. And the newest investing obsessions on social media promises the next winning scheme. How is the everyday investor expected to navigate conflicting ideas? If you’ve sold an investment at the wrong time, held onto a stock thinking it would rebound, or regretted an investment decision in hindsight, you’re in good company.

In Unbiased Investor: Reduce Financial Stress and Keep More of Your Money, Portfolio Manager, Coreen Sol, delivers an insightful and practical roadmap to reach financial success. In the book, you’ll explore the psychological obstacles that all investors face, as well as easy-to-adopt habits to overcome them.

The author explains how to recognize the decision-making shortcuts, otherwise known as “heuristics,” that we all use to navigate and understand the complex world around us. She also describes counter-productive and ineffective risk-management strategies that decrease returns without mitigating risk. Finally, you’ll consider your own personal goals, preferences, and skills in the creation of a financial strategy aligned with what you value most. You’ll learn how to keep your eyes—and your wallet—trained on your most important goals to reduce the stress of financial decisions and reliably grow your wealth.

An effective, hands-on guide for anyone who has made an investment, Unbiased Investor provides strategic habits to shut out the noise and focus on building sustainable wealth with reliable financial choices.

PRAISE FOR UNBIASED INVESTOR

“Unbiased Investor is the perfect book for any investor in the market. Why? There is always financial risk and in periods of volatility there is a tendency to make emotional financial decisions. Coreen lays out the facts, helps you to build the plan, and more importantly, shares why it is critical to stick to the plan for your financial well-being.”

—PATTIE LOVETT-REID, Chief Financial Commentator, HomeEquity Bank

“Investing is sometimes more art than science. Sol demonstrates that ‘art’ is often the science of knowing thyself. More than a systematic review of how psychology influences our decisions in predictable ways, her work guides investors to structure decision-making based on personal values and healthy habits to minimize the suboptimal outcomes.”

— STEPHEN HORAN, PhD, CFA, CIPM, CAIA, Executive Editor, Financial Planning Review, CFP Board

“The Unbiased Investor helps uncover our biases and how we make investment decisions that go against our better judgment. Most importantly, it provides ways to develop new approaches and habits that can lead to better financial well-being. A must-read for those on a journey towards rational, thoughtful investing!”

—DR. CHARLES CHAFFIN, Author of Numb and Psychology of Financial Planning

“A riveting read for anyone who is interested in understanding their relationship to money. I was shocked by how much I learned...even after having worked in the investment industry for over 30 years. Do yourself a favor and read this book!”

—BARBARA STEWART, CFA, Researcher and Author

“Coreen Sol has a passionate perspective about life. And that applies to her professional activities. She brings a deeply held set of values and analytical skills that collectively create the conditions for fresh insights and patterns that others miss. Unbiased Investor discusses the attributes that lead to positive financial decisions, whether they involve day-to-day consumer purchases or more significant transactions.”

—DOUGLAS EYFORD, KC, Lawyer, Civil Litigator

“In an engaging and accessible fashion, this book helps you negotiate a path to a successful economic future. But, even more than that, it provides you with insights that will enhance how you think about and evaluate your world.”

—MARK D. HOLDER, PhD, Professor, Bermuda College