Ever wondered how you are as an investor, how your personality traits can affect your behavior as an investor.
There are several studies of investor types; the CFA Institute breaks the personality types into four main groups: Preservers, Accumulators, Followers and Independents. Then there’s the well-known Bailard, Biehl and Kaiser (BB & K) five-way model which is based on investor confidence levels and their preferred investment method.
The Barnwell Two-Way Model* appears on the surface to be much more clear-cut, grouping investors as either “passive” or “active”. Each study has its merits, although all three could suggest that a person’s feelings towards risk may change based on the circumstances.
One of the key consideration when defining investor personality type is the balance of objective (what you want to gain and why), and constraints (time horizon, liquidity and perception of risk). Also, are the funds you are investing for yourself, your family, your business, or your client? .
A good question to ask would be, what is your propensity towards risk? Are you more likely to play it safe for a better chance of ROI, or would your personality overrule this in favor of possible higher returns but on a bigger gamble?
Featured below are six broad Investor personality types, most of us will be close to one of the investor types or a combination of the types below:
the Cautious one
Driven by a strong need for financial security these investors avoid high-risk ventures. They are conservative in their investment choices and hate losing even the slightest amount of money.Their investment decisions require a great deal of time, thought and investigation. They will suspect a hard selling financial advisor and will be over cautious leading to them doing their own groundwork thoroughly before committing to an investment decision
the Emotional one
With a strong belief in their instincts rather than proper due diligence, these investors believe in luck and invest with their heart instead of their head.They also tend to get optimistic based on their beliefs and this can also lead to a reluctance to cut losses on a bad investment decision in the hope that things will work out eventually.
the Technical one
Hard facts, data and numbers is what these investors largely go by for their investment decisions.They are observant and vigilant investors who actively trade on price fluctuations and usually quick to spot a trend early on.These investors are usually up to date on latest tech developments.
the Unsure one
This type of investor is either laid back or unsure when it comes to finance and investment.They are mostly far more comfortable to handing over their funds to a professional advisor to manage on their behalf.Consequently, once they’ve made an investment they’re not likely to check up on how it’s doing until they make a decent profit or loss.
the Informed one
These investors / this investor use information from multiple sources before making any financial decisions. They constantly monitor investment markets as well as the economy to work out what could potentially give them a better chance of return.They will happily listen to expert advice and read financial opinions, only going against the market after very careful consideration of all the pros and cons.They have financial confidence and believe in their own choices, trusting that their knowledge and experience to translate into long-term gains.
the Overconfident one
Excessive confidence is a trait of these type of investors, they believe that they would do no wrong.Thinking that they know more than others, these investors often do not follow the advice of their advisors and end up taking on greater risk than is necessary.
Did you see yourself in any of the personality types?
Whether any of the above rang true or was a little too close for comfort, the most important thing is this: Know thyself, and know thy risk appetite and investment objectives before investing*The Barnwell Two-Way Model developed by Marilyn MacGruder Barnwell of the MacGruder Agency, Inc. in 1987.