Investor Personality Types
Did you know that there are eight different investor personality types? Knowing which one you lean towards is likely to have a very positive effect on your overall investment strategy. After all, once people become aware of their biases and how they can negatively effect your portfolio, they are more likely to adapt to or moderate these biases. Read some of the statements below and decide for yourself if they describe how you think or how you acted in the past.
Idealism vs. Pragmatism
Idealists are seemingly eternally optimistic about the stock market and tend to seek information that validates this viewpoint. They may overestimate their abilities and underestimate the abilities of others, and therefore don’t do the required research before investing. The following statements are typical of idealists:
I bought ABC stock near its 5-year low. After all, there’s only so low it can go before it starts to recover and I make a substantial return.
Now that recreational cannabis is legal in Canada, everyone is talking about how rich these companies are going to be in 10 years. I better get in now before it’s too late.
When I do research, I typically seek out the opinions of one or two analysts who have given good recommendations in the past.
Pragmatists are the opposite. They realize that the market may be operating at a higher level than they are capable of understanding, and that it is just not their field of expertise. They are also likely to seek out views that are contrary to their initial belief about an investment and weigh those opinions appropriately.
So are you more of an idealist or a pragmatism? Write it down!
Framer vs. Integrator
Investors who are framers tend to view their investments on an individual basis rather than as a whole. They may have different “pots” of money: one for long-term savings, one for a down-payment on a new house, one for an upcoming vacation, and another for “play money”. They also are subject to anchoring bias, which causes them to get anchored to a particular price they feel it is worth at a minimum (such as their own purchase price). The following statements are typical of framers:
My portfolio matched the index this year, but I’m really disappointed with how ABC Company performed. If I didn’t invest in it to begin with, I would have beaten the market by 3 points!
My account with Questrade is down 25% this year but that’s okay, it’s strictly for junior mining companies I think will hit it big one day. My regular retirement fund continues to perform well.
Integrators, however, view all the investments in all their portfolios as one big integrated system - every security has a part to play. That ABC stock above which performed poorly may end up performing well in case the overall market suddenly turns negative.
So are you more of a framer or an integrator? Write it down!
Reflecting vs. Realism
Reflectors tend to justify poor decisions instead of owning up to them, and tend not to fix them in the hopes that their fortunes will turn around. They also fear making mistakes and may hold onto securities even if they are not a good fit for their overall portfolio. The following statements are typical of reflectors:
I bought ABC oil stock last year at $5 after doing a lot of research. Since then the shares have fallen to $1 but that’s mostly because of the drop in oil price. It’s a good company and it should recover when oil prices go back up.
My grandfather left me shares of ABC upon his death 5 years ago. The Company hasn’t performed that well since, but I’d still like to keep them because my grandfather was a very smart man and besides, owning them helps remind me of him.
Realists do not trouble coming to terms with poor decisions. Once they see they made a mistake, they are quick to admit it and rectify it before the situation gets any worse. Making decisions under pressure is not difficult for them.
So are you more of a reflector or a realist? Write it down!
Your Investor Personality Type
Now with your results in hand, place yourself into one of the eight categories below. Check out our pages on Cognitive and Emotional Biases to see which ones you are susceptible to, and make a plan to moderate or adapt to them!
Idealist - Framer - Reflector
Overconfidence, Optimism, Availability, Self-Attribution, Illusion of Control, Confirmation, Recency, Representativeness,Anchoring, Conservatism, Mental Accounting, Framing, Ambiguity Aversion, Cognitive Dissonance, Loss Aversion, Endowment, Self-Control, Regret Aversion, Status Quo, Hindsight
Idealist - Framer - Realist
Overconfidence, Optimism, Availability, Self-Attribution, Illusion of Control, Confirmation, Recency, Representativeness,Anchoring, Conservatism, Mental Accounting, Framing, Ambiguity Aversion
Idealist - Integrator - Reflector
Overconfidence, Optimism, Availability, Self-Attribution, Illusion of Control, Confirmation, Recency, Representativeness, Cognitive Dissonance, Loss Aversion, Endowment, Self-Control, Regret Aversion, Status Quo, Hindsight
Idealist - Integrator - Realist
Overconfidence, Optimism, Availability, Self-Attribution, Illusion of Control, Confirmation, Recency, Representativeness
Pragmatist - Framer - Reflector
Anchoring, Conservatism, Mental Accounting, Framing, Ambiguity Aversion, Cognitive Dissonance, Loss Aversion, Endowment, Self-Control, Regret Aversion, Status Quo, Hindsight
Pragmatist - Framer - Realist
Anchoring, Conservatism, Mental Accounting, Framing, Ambiguity Aversion
Pragmatist - Integrator - Reflector
Cognitive Dissonance, Loss Aversion, Endowment, Self-Control, Regret Aversion, Status Quo, Hindsight
Pragmatist - Integrator - Realist
None!
I hope you’ve enjoyed learning more about your investor personality type and which cognitive and emotional biases you may be susceptible to. Most importantly, I hope you keep this in mind the next time you are faced with a difficult investment decision. You can find descriptions and examples of all these biases on our Cognitive and Emotional Biases pages. Finally, if you enjoyed this article, we ask that you consider subscribing for free to our weekly newsletter! Subscribers will also receive instant access to our Subscribers Area, which has all sorts of great fundamental and technical reports suitable for dividend, value, growth and contrarian investors. Thanks so much for reading!
