Psychology and the Stock Market (1977) by David N. Dreman
Even though it was published over 35 years ago, this book provides a good overview of the role that psychology plays in the stock market. Part I addresses the poor performance of professional investors and the rise and fall of technical analysis. Part II takes a look at various bubbles and manias that have occurred throughout stock market history, showing that they tend to have common characteristics. Part III delves into the psychology behind the poor performance and bubbles by discussing the follies of groupthink, which is the lack of independent critical thinking among many investors that leads to herd-like behaviors such as panic selling. I appreciated how the author drew upon a great deal of social psychology research to support his groupthink idea. Part IV deals with the efficient market hypothesis (EMH) and the question of whether an investor can beat the market. It provides one of the most compelling counterarguments to EMH that I have ever read, highlighting psychological evidence that destroys EMH assumptions about investors being completely rational, informed, and unbiased in their decision-making. Believers in EMH should find themselves questioning their beliefs after reading this book.
Note: I read this book in November 2012.