The Investor’s Quotient: The Psychology of Successful Investing in Commodities & Stocks

Great Book on Psychology

An good book which tells that it’s the trader’s mind which makes him success or failure

Brilliant book. Only for people who are interested in psychology and who believe that its the individual performance at work and not the trading system which is behind the success of any good trader.

I have been investing for a good number of years. I think I have made more money for the firms I have invested with than for myself. Recently I realized that I might make some more money by investing directly in stock myself. For the last six months I have been on an interesting learning curve. That curve led me to “The Investor’s Quotient”. Although published in 1993 the book is still current.

I have long been a student of psychology. I long ago realized that the mind is a powerful tool.

An analogy I like to use is the following. As I was learning the game of golf I realized that there are certain mechanical steps to the game, the way to hold the club, where to place the ball, what ball to use etc. but the biggest hurdle is understanding yourself, being positive and controlling your emotions. Jack Nicklaus once said that the game is played between the ears. You cannot deny he has been successful. This book has provided the same type of thinking and applied it to stocks. Your emotions can make or break your financial success. This book helps in setting your mind in a positive mode.

There are many, many books on the general premise that you can invest in stocks. There are significantly fewer providing step by step methods on how to invest in stocks. There is an extreme shortage of good books that help you understand what you have to go through to succeed in the stock market and provide a powerful mindset going forward. I believe that this book is one of those few.

I recommend it.

This a great book that delves into the psyche of every trader and makes them figure out their underlying reasons for why they trade.
Mr.Bernstein makes a trader put himself under a microscope and forces him to interact with markets in a way that fits his personality.
Mr.Bernstein also shows traders how to change their personalities to match the markets they are trading, whether it’s stocks or Commodities.

if you are allowed to buy only one book that deals with the psychology of trading. this will be it. what is excellent about this book is it gives you an idea on how to improve yourself using psychology.
in the first few chapters of this book, mr bernstein links the science of psychology to the ‘science’ of investing. exploring the various branch of psychology, then comparing psychology to our trading behaviour to show how it is linked.
after that, mr bernstein goes on to tell you the many ways in which we can use what is learned in the science of psychology to improve, correct and/or enchance our trading. 200 odd pages of relevant materials and wise words on how you can go about doing it.
the author is a very good and methodical teacher. bringing out each aspect of our trading, showing us how we can look for weaknesses and improve. ie he talks about our personal beliefs, how our childhood can affect our trading style, our relationship with broker/spouse/family, our methods, or even certain specific probelms like not able to cut losses etc. analysing each aspect, allowing us to understand how it can affect our trading, and then show us how we can correct/improve. he even teaches the reader how best to read books!
after reading this book, you should learn much about yourself and the kind of trader you are. you will also learn the best way to help yourself, to improve on any weaknesses.
if there is a degree on trading, this is the definitely one of the main texts. i will also confess that my trading has improved tremendously since reading this book, from annual loser to annual winner.
this book is highly recommended. it will also stand the test of time, i strongly believe it will still be as relevant 300 years from now!

The Investor’s Quotient, its first edition (1980) written long before the days of Daniel Kahneman winning the Nobel Prize, is at its core about how to master yourself as a means to the endgame of mastering the market. This classic read was way ahead of its time and ages well due to Jake Bernstein’s background as a clinical psychologist and trader.

There are only a few aspects of the book that deem critique: Too often the book strays into the realms of modern-day, glossy “help-thyself” magazines, with tables such as “Positive Things After A Profitable Trade”, with advice #5: “Buy something! Now is the time to get that new car or tape player”. This tendency, as well as the somewhat lengthy historical sweep of modern psychology brings the overall grade down a notch. However, most books are written with an actual target audience in mind and the book aimed at the budding masses of private investors that slowly started trading again after the horrific decades in the 1960’s and 1970’s. Nowadays, that target audience has dwindled as the savings pool has shifted into the hands of institutions. But the core message is no less relevant: Past behaviour is a certain indicator of future behaviour.

So, how do you gain a successful investing/trading behaviour? Well, Bernstein says there are basically two ways: either through being extremely fortunate or by sheer discipline. But discipline is more than just a set of rules and it makes no sense if you are following a rule that is not consistent with investment success. Instead, discipline means self-control, consistency, organization, persistence and ability to take action – all attributes that will hike the odds of profitable trading. The overarching objective of the book is, again, to master yourself by a) knowing yourself well enough to know what works best in your hands and b) putting discipline into the very DNA of your market activity.

Market participants of today would surely look back at the line “derived from personal experience in trading the most volatile and demanding markets in history” (referring to the 80’s), with a slight “if-only-he’d-known”-smirk. But that is the very thing about investing: Today’s future is always the hardest future of them all. Hence, the book’s most important part might be the trading-implications from B.F. Skinner’s “learning theory”. Say you invest in stocks based on two rules: ROE must be more than 15% and PBV must be below 1. One day Stock A meets your criteria, but then you happen to talk to your neighbour who says: “I heard bad things about the CEO, I’d stay away”. You take his advice and skip the trade, the stock goes down and you feel good about the whole thing. But this avoidance of a loss will without any shred of doubt lead to “faulty behaviour” and you will be in trouble in the long run.

Because of peoples’ constant thirst for (positive) reinforcement, a “faulty” trade resulting in a lucky profit is much more likely to be remembered and acted upon again, as opposed to a “correct” decision leading to a loss. James Montier many years later coined the “process over performance” thinking. Faulty learning then leads to more faulty learning until the road to success is permanently obscured.

This is all fine but in today’s harsh reality of daily NAVs, tracking errors, nervous clients and trigger-happy bosses, how can you possibly abide by this? Isn’t behavioural finance such a powerful force in modern portfolio management just because so many are trapped within “the institutional barriers”? Certainly, but remember that they are all excuses, not reasons for not investing in a manner where the odds are in your favour. Ultimately, the only person who decides whether you ought to follow your inner convictions and beliefs all the way is you.

Save your money. Never, never waste your funds on the drivel this author produces!!

A profitable trader would never have time enough to write even one tenth the quantity of words this person produces.

Find traders that actually make money to learn from. There are a few that have written good books.

As starting points for trading:
For equities traders try: Professional Stock Trading
For futures traders try: Trading Day by Day
For psychology of investing try: Trading in the Zone

These are simply starting points, but are written by REAL traders (Mark Douglas excluded), not worthless-book producers.

This is the book you have been looking for. Stop looking.

The Investor’s Quotient goes into great detail about the psychology of investing and suggest the various ways you can become mentally strong to withstand the ups and downs in the market and become a successful investor.