In the first part of the book Ashley discusses, compares and challenges set notions on speculation and investment. He also compares investment and speculation to gambling. The discussion is fairly provocative and would stimulate debate particularly between professional gamblers, investors and speculators.
He continues by discussing the complexity of markets coming to the conclusion that
?plainly financial markets are not just about statistics and probability, utility is just as important as cash or monetary values; and success means different things to different people.?
His selected examples lead him to the conclusion that
?an important, if not the most important, element in financial markets ? the intertwined factors of crowd behaviour and investor emotion.?
He goes on to draw out some market facts:
?first that new markets are very profitable for market makers and second that option trades need not be complicated, simple rules apply e.g. the simple gauging of supply and demand plus what appears to be a good sense of probability.?
His stories, definitions and conclusions make the book suitable for the novice graduate or investor, yet it would still be of interest to the ?professional financier?.
The section on ?Past masters? give some good tips and a selective insight on how financial speculation has been done.
When he is talking about ?Basic Building Blocks?, I?m not sure that the diagrams help to support his discriptions of dealing in financial markets, except as an aide memoir, then why have the arrows in a circular and anti-circular fashion? I prefer graphs in a book if you are discussing relationships. His explanations of deals in financial markets are simple and easy to understand and his graphs from Fig. 3.4 onwards illustrate that graphs rather than the previous diagrams are useful summaries.
However, it is the section, ?Mental Curves?, that concentrates on the area that Ashley is really interested in. Analysing how humans behave in financial markets,
?... behavioural finance looks at the psychological aspects of market participation rather than just raw data and news.?
If you thought that understanding risk was complicated then these new theories do not simplify matters but add a new dimension that is worth noting. Know your own risk profile is the message - and how you react to market information.
Ashley continues by explaining pitfalls and describing financial markets for the investor with amusing facts, anecdotes and models, which serve to convince the reader that financial investment is simple and not as complex as it seeems - but it is not easy.
Finally, some messages are very clear
?... the only test is how much money you or your fund manager has made. Is it consistent? Is it sustainable??
?Learning to control ourselves is much more attainable than learning how to control markets?
... and do not forget the hidden costs of trading.
The book adds to the readers understanding of financial markets and helps them to examine their own investment behaviour.