Talk to a group of investors and it quickly becomes apparent that there are many differing motivations, strategies and attitudes amongst them. A little honest introspection can lead you to a better understanding of your own objectives and the impact your personality has on your activities on the Aussie sharemarket.
Noted financial editors and fund managers have described the various personality types that exist amongst share market investors. Let's take a look at the personality types they have identified.
Big picture analysts
These are the serious students of trends in political and economic activity – both here and internationally. They gather data on international trade, political leadership and general sentiment, then drill down to apply this knowledge to the performance of major corporations.
They believe their understanding of the global picture helps them make more informed decisions about individual share options. This sounds like hard work, but their personalities require the reassurance of this research.
Schroders Chief Economist and Strategist Keith Wade says that geopolitical risk is regularly cited as the greatest risk for markets and investors. Recent incidents like the waxing and waning of US–China trade tariff talks and the ongoing uncertainty surrounding the UK's Brexit negotiations are two strong cases in point.
Twenty years ago, this approach could have led these big picture analysts to predict the growth in demand for Australian raw materials like coal and iron ore. An investment back then in companies like Rio Tinto Limited (ASX: RIO) and BHP Group Ltd (ASX: BHP) would have seen excellent returns.
In 1999, Rio Tinto shares traded for an average stock price of $16.53. Today their share price is over $95 – a gain of 574%!
The professional trader
There are those among us who thrive on finding the deals that maximise returns while minimising risk. They analyse alternative stocks and scrutinise balance sheets – comparing cash flows, revenues and inventories year on year. They also evaluate the past performance of key management personnel within each company.
Armed with all this data, professional traders tend to make the sort of investment decisions that perform with moderate initial success but return solid gains over the longer term.
Share traders like Geoff Wilson of Wilson Asset Management are particularly skilled in accounting analysis and mathematics. These attributes have made him one of Australia's more successful investors, consistently capable of finding good opportunities while mitigating the associated risks.
The short-term gambler
Financial experts report that they are often approached by people asking for tips to achieve a fast return of 'thousands' of dollars. They categorise these investors as short-term gamblers.
They are as fascinated by the stock market as they are by the field of horses in the Melbourne Cup. Their approach to both 'investments' is identical.
For this personality type, the thrill of the gamble will see them take good profits in time of rapid share market growth but sadly, equally large losses when markets decline.
So, what type of investor are you?
Understanding your own personality can help you make better investment decisions. I personally favour the professional trader's approach, but it's ultimately up to you. So try a little honest self-analysis before your next trade, it can only help!
