Friday, June 17, 2016

Does your Investment Style fit your Personality?

To be a successful investor, you must have your own investment style. That means evolving a system that works for you - by figuring out your own strengths and weaknesses and keeping a record of your successes and failures.

Every person has personality traits, cognitive biases, eccentricities, habits that affect their decision making. If you are impulsive, you may buy 5000 shares of Opto Circuits at Rs 9 and hope to double your investment in 3 months.

If you are risk averse, you may be happy with the long-term returns you get from a monthly SIP in an index fund or a balanced fund. 

An investor below the age of 30 may invest all her monthly savings into an equity fund. An investor who has already celebrated his 50th birthday may prefer the safety of bank fixed deposits or a debt fund.

According to an article published by the CFA Institute, there are four types of Investor Personalities:

1. Preservers - loss averse and deliberate in decision making, they are more keen to preserve their existing wealth than indulge in risky investments in search of rapid growth. They often end up not taking any decision at all and miss money-making opportunities.

2. Followers - not much interested or skilled in the investment process, they end up following the advice of friends or colleagues and have a portfolio full of yesterday's winners.

3. Accumulators - may have tasted success in a business enterprise or career, giving them the confidence to actively manage their own investment portfolio. They like to win big, and often make large risky bets that can lead to big losses.

4. Independents - like to think 'out of the box' and play contrarian based on their own research. They usually follow a plan and are not as over-confident as Accumulators. But relying too much on their own research can be time consuming and counter-productive.

So, which of these four Investor Personalities fit you the best? Give it some thought (if you haven't done so before) and then decide what kind of investment style you should follow. Your investment success will depend on it.

Read more from this investopedia.com article.  

2 comments:

Karthikraja K said...

more of preserve with little toppings of "Independent" plus " Followers"

Subhankar said...

There you go! As long as you know which of your 'gunas' are dominant, you will stay a step ahead of the 'maya'-affected.