Everything you ever wanted to know about Behavioural Finance...

...but were too afraid to ask. Behavioural Finance (BF) is also known as behavioural economics. There are a couple of sites I have found dedicated to it, one is mentioned in the next paragraph and this one has a thorough book list relating to the subject. Of those featured on the list I have read books by Ariely, Belsky, Galbraith, Haugen, Kahneman, Malkiel, Montier, Shiller, Taleb & Thaler. I have therefore updated my reading list accordingly, certainly some interesting stuff on there worth checking out. There was also a good Horizon programme this weak featuring Daniel Kahneman the Nobel prize winning author of many good books on Behavioural Finance including the highly recommended Thinking Fast & Slow. You can watch the Horizon programme on the BBC I-Player here until the 5th March 2014.

To start there is an introduction to BF here but of more relevance to investors a short document about the Psychology of Successful Investing. It is a bit of a block of text so if you don't want to read it all then skip to the last page for the lessons to be drawn from it. Otherwise if you do read it you can note down the behavioural finance terms it refers to and look them up on the website it came from dedicated to BF. This also helped me to discover another Google service I didn't know existed called Google Scholar which you can use to search for research and other document on subjects you are interested in. Talking of which another research document - Which Investment Behaviours Really Matter for Individual Investors? by Joachim Weber et al. is even longer and more technical so extracts from this are as follows (my emphasis):

"The mean short-term investment skill in our sample is negative, which is in line with other
research on individual investors’ abilities (e.g., Meyer et al., 2012). It may therefore
be that better-diversified investors simply diversify away their lack of skill. As hard
as it is to always be right, it should also be hard to always be wrong. Less-diversified
investors then suffer more from the mistakes they make and realize lower returns than
their better-diversified counterparts without needing to be substantially less skilled."

"We investigate the multivariate relation between ten different measures of investment 
behaviour and portfolio performance. Only for two of the ten measures scrutinized,
namely under-diversification and lottery-stock-preference, we find statistically significant
and economically large negative effects on performance. Reducing these behaviours by one
standard deviation relative to the sample mean would allow investors to improve their
annual returns by 3% for lottery-stock preference and 1% for under-diversification. Eliminating 
these behaviours entirely would yield improvements of 4% for under-diversification
and 3% for lottery-stock preference."

See the full research document for full details. Finally see the latest CS Yearbook for 2014 which is just out and page 31 in particular for a piece on a behavioural take on Investor returns. It also has a topical piece on how Emerging markets have compared with developed markets in the long term. They also revisit their previous finding that historic high growth economies have given poor investment returns going forward.