Knowing your investing personality – Part 1
The first step that one should take is to identify the personality traits that will assist you or prevent you from investing successfully and then manage them accordingly. Although there are many risk profiling questionnaires that are easily accessible, there are very few useful behavioural models that help investors identify their own personality traits developed by Bailard, Biehl and Kaiser.
This model classifies investors according to two personality characteristics: method of action (careful or impetuous) and level of confidence (confident or anxious). Based on these personality traits, the model divides investors into five primary groups:
The Individualist: Careful and confident and often takes a do it yourself approach
The Adventurer: Volatile, entrepreneurial and strong-willed
The Celebrity: Follower of the latest investment trends
The Guardian: Highly risk averse and preserves wealth
The Straight Arrow: Shares the characteristics of all the above equally
Naturally, the best investment results tend to be realized by an individualist, or someone who exhibits analytical behaviour and confidence, and has a good eye for value. However, if you determine that your personality traits resemble those of an adventurer, you can still achieve investment success if you adjust your strategy accordingly. In other words, regardless of which group you fit into, you should manage your core assets in a systematic and disciplined way.
Bear in mind you could potentially be your own enemy. Depending on your personality, strategy and circumstances, you may be sabotaging your own success. A guardian would be going against his or her personality type if he or she were to follow the latest market craze and seek short-term profits. Because you are risk averse and a wealth preserver, you would be affected far more by large losses than the high returns that come from high-risk investments. Be honest with yourself and identify the factors preventing you from investing successfully or moving you away from your comfort zone.
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