What Investors Really Want Book Review

Psychology forms a significant aspect of personal finance and investing that is often taken for granted but is now a field of study called Behavioral Finance. There are a wealth of factors influencing people’s financial decisions such as how much to save or spend, how much risk to take and what investments to invest in. In his book, What Investors Really Want: Know What Drives Investor Behavior and Make Smarter Financial Decisions Meir Statman answers this general question by looking at the impact that human emotions, behavior and psychology have on financial decisions.

What investors really want

Before I start my review of this book, I couldn’t resist linking the following video which it uses as an example. What common financial error does it represent?

The benefits of investing

A central premise running through this book is that investors are looking for one or more of the following three benefits from their investments: Utilitarian, Expressive and Emotional benefits. The author cites many experiments, articles and anecdotes to back up his arguments; in fact there are 30 pages of references!

One aspect I found interesting were many examples taken from the “World’s Work“, a magazine which ran from 1900 to 1932 – even though some of the stories are over 100 years old they are still applicable to today’s investor.

Utilitarian benefits

Utilitarian benefits are best summed up by Cuba Gooding’s character in Jerry Maguire: “Show me the money!” Investors want profits and wealth; this is the utility of owning an investment.


Expressive benefits

Expressive benefits satisfy an investor’s status and values, and what those investments say to other people. Whenever I read a post talking about stock “plays” instead of “purchases”, I can’t help but think that the author is gaining an expressive benefit out of the investment and trading process.

Emotional benefits

These are benefits from how the investments make you feel. It can be exciting trading stocks and trying to beat the market, you might be proud to have a large portfolio or else having investments might make you feel more secure.

M @ TheresValue wrote an article a couple of months ago on morality and investing which is worth a read (the comments too). The book dedicates an entire chapter to this topic since investors may choose the Expressive and Emotional benefits from investing in socially responsible stocks over the potentially higher Utilitarian benefits from some of the ‘sin’ stocks such as tobacco, defense, alcohol and gambling.

Mental accounting

I paid $0.01 for this book plus $3.99 in shipping. However I consider that I got this book for “free” courtesy of Microsoft (I earn a $5 Amazon gift card once a month or so from their Bing Rewards program just from internet searches). But really that’s just mental accounting on my part (I still spent some of my income) which is one of the topics discussed in this book. Mental accounting isn’t necessarily a bad thing either, otherwise we wouldn’t have Emergency Fund or Savings accounts.

One aspect of mental accounting is the treatment of income from dividends vs. capital gains. There’s much more resistance to dip into capital gains for income compared to spending or re-investing a dividend. But a dividend is really just a distribution of a capital gain.

Wrong thoughts

The book spends a chapter on cognitive errors, some of which I’ve mentioned below. While there’s no specific strategy discussed to prevent these, the author cites example from Warren Buffet and other investors who rely on selection processes designed to eliminate these.


The video that I linked above was an example of a framing error, after all $63 million sounds much more than the $30 million after taxes. This is a common bias that influences financial decisions. If I bought a stock at $2 and it went to $4 before I sold it at $3, I could frame it as a 25% loss, when it’s still a 50% gain.

A common thread throughout the book is that investing is like playing a game of tennis, only the opposite player is better and faster than you. Admittedly this viewpoint is applicable to a “beat-the-market” or “day-trading” strategy which the author advises against. However, the author makes an interesting point that you don’t get better at investing because you invest compared to other professions where practice makes perfect. The book cites many cases where investors made money in a series of trades only to lose it all because of increased confidence in their abilities – how an investor frames (views) stock trading and investments can lead them astray.

Patterns and numbers

I found the section on Representativeness errors the most interesting – largely because I’m a geek for numbers. There’s no real math in the book so to illustrate a point I’ll use my parents. They play the UK national lottery every week (they’re going to win one of these days for sure!) but when I suggested to my mother that she use the numbers “1, 2, 3, 4, 5, 6”, she laughed and said those numbers would never come up. She’s able to rationalize the sheer improbability of consecutive numbers being rolled, yet the odds are the same as the numbers she picks.

There’s a short discussion on finding patterns and extrapolating trends. Humans are great for this, it’s what our brains do – we’ve seen the Man in the Moon, aliens in photos from Mars and found secret codes in the Bible that predicted the assassination of Israel’s Prime Minister. Although using the same method, the book Moby Dick also predicted his assassination along with those of JFK and Martin Luther King, as probably would any long book.

It should be no surprise that the author isn’t all that impressed with technical trading analysis or the odds of picking stocks that beat the market over the long term.

Confirmation bias

Confirmation bias is the tendency to look for conclusions that support our views or decisions in favor of arguments or data against them. It can be useful to not only ask the question “why shouldn’t I buy this investment” in addition to the more common “why should I buy this investment”.


Emotions affect financial decisions as you’d expect. Even company names can sway investors with hard to pronounce company names giving negative connotations, as if a nice sounding name denotes future performance. Confidence, Fear and Anger are other key emotions affecting financial decisions.

It’s the balance between the hope for riches (make risky investments for more rewards) and fear of poverty (hold cash, government bonds) that each investor has to determine. One example that illustrated the balance was the example of farmers in India with a small plot of land who can either grow a commercial crop for profit (e.g. cotton) or a food crop. Food crops can sustain families giving some freedom from poverty, but commercial crops offer higher rewards (riches). Obviously a farmer with a large plot of land can do both, but smaller farmers face a difficult decision.

The exact balance between hope and fear is different for all of us and is influenced by age, circumstances, gender and culture with a chapter dedicated to this topic. Even the perception of being poor can encourage people to take bigger risks (experiments showed that people made to feel poor bought more lottery tickets), and yet it’s also the fear of becoming poorer that influences some people to sell stocks as prices decline.

There’s more

The book has more to offer, including sections on unwillingness to pay taxes and advice on investing on children and family. It is 240 pages long after all (excluding the list of references at the end). But since I don’t evade taxes via an offshore bank account nor have any children, I don’t have much to comment on those chapters.


I must admit that my first impression on reading the book is that I found the writing style to be a little ‘awkward’. I know that’s rich coming from me and how I write, but hey that’s how I felt! While it’s all grammatically correct, the paragraphs seemed a little disjointed to me.

A lot of research has gone into this book however and there are many examples of the irrational things that rational people do. Like the Little Book of Behavioral Investing that I reviewed previously, the emphasis here is on identifying behaviors and thoughts that influence your decisions; it’s up to you to determine how to act on them.

Compared to the Little Book, What Investors Really Want covers social and cultural influences in more detail. There’s some overlap between the two books for example the illusion of control (“I know what the market is going to do”) is discussed in both books but I think they complement each other fairly well.

And what investors really want? I’ll tell you what they want, what they really really want…

The simple answer is that they want to be rich, but you knew that already I guess.

However to achieve that goal, it’s just as important for investors to be honest and transparent with themselves about their comfort levels, risk tolerance, hopes and fears as well as their selection of investment products or asset allocation, since the two are intertwined. Know Thyself as the ancient Greeks advised.

Sorry for channeling the Spice Girls for a minute there – bad judgment on my part as I can’t get that song out of my head now.