Behavioral Finance: An Innovative Approach to Investing Joseph S. Grieco September 28 th, 2013 This material is provided for information purposes only and does not constitute an offer to purchase any security or investment or a solicitation of investment advice. An offer of interests in any particular investment can only be made pursuant to the relevant offering documents which contain important information concerning risk factors, performance and other material aspects of the investment and must be carefully read before any decision to invest is made.

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3 We will cover three main topics: 1.What is behavioral finance? 2.How is behavioral finance meaningful to me? 3.How can behavioral finance impact my investment considerations? Agenda

What is behavioral finance?

5 Chart source: Westcore Funds / Denver Investment Advisers LLC 1998 The cycle of market emotions

6 Two lines of identical length

7 Can be made to appear different by changing perspective

8 Imagine that you bought $6000 worth of stock from a now bankrupt company. There are two alternatives to recover money… Would you choose A or B? Alternative A Recover $2000 Alternative B 1/3 chance $6000 recovered 2/3 nothing recovered 92% go for A Source: Wang, 1996 Are you a risk taker?

9 Source: Wang, 1996 Alternative A Recover $2000 Alternative B 1/3 chance $6000 recovered 2/3 nothing recovered 92% go for A Alternative X Lose $4000 Alternative Y  1/3 chance nothing lost  2/3 chance $6000 lost 67% go for X Would you choose A or B? Imagine that you bought $6000 worth of stock from a now bankrupt company. There are two alternatives to recover money… Would you choose X or Y? Different perspectives can change risky choice

10 Behavioral finance is the study of human behavior in a financial context, and acknowledges that the human side of investing is critical to investment success. Traditional Finance Behavioral Finance What is behavioral finance?

How is behavioral finance meaningful to me?

12 What is your Investment Personality?

13 Choice 2: Flip a coin If heads, you receive $0 If tails, you receive $100 Choice 1: Receive $20 in cash OR Forced decision between Choices 1 and 2... Example: What is your Mindset toward risk?

14 Participant is brought into a room with other people In sequence, each person judges line lengths: which is most similar to the target… A, B, or C? A Target BC Group decision making: Asch Experiment

15 Information sharing

16 Information sharing

17 Information sharing

How can behavioral finance impact my investment considerations?

19 Understanding your own Investment Personality