Knowing your investment personality is essential for structuring your portfolio.
Very often, we construct our investment portfolios by using in-depth research or recommendations from top analysts and portfolio managers. But most people don't reap optimal returns like top portfolio managers do.
A key reason for this: Their portfolios don’t suit their personalities.
Aside from the common active/passive and aggressive/conservative types of investment personalities, I found that there is a key personality trait that is often omitted. In my latest book, Personality Driven Portfolio, I classify this trait into four “Investment Management Styles”.
Which of the four Styles you fall into depends on your preferences around taking profit and cutting loss.
Type #1: Egoistic Elephant
You’re confident of your investments, and willing to hold on to them until the market plays out the way you predicted. This type of investors will likely see big swings in their portfolio returns.
Advice: Pick investments that are stable in price over time, such as blue chip stocks with stable dividend yields.
Type #2: Diligent Deer
You’re a disciplined investor. You won’t hesitate to cut your losses if the price goes against you, but you patiently await a sufficient rise in price before taking profit. This type of investors tends to see small losses, accompanied by big gains, over time.
Advice: Pick tech stocks that can multiply several folds over time.
Type #3: Cagey Crab
You are quick to take profit but seldom cut your losses, choosing to wait for an upturn in your investments. Most retail investors tend to fall under this personality type.
This type of investors tends to experience small gains but large losses over time. For example, a stock that could have provided a 300% return in 3 years would have been cashed out by a Cagey Crab after it hits a 30% profit in 3 months – causing them to miss out on the next 270% of potential gains. Conversely, if you bought a stock and it trades lower, you are likely to wait till the price comes around.
Advice: Pick high quality and stable blue chip stocks that are less likely to decline much over time.
Type #4: Busy Bee
You are an active trader keen to take profit and cut loss reasonably quickly. This type of investors sees small gains and small losses in their investments.
Advice: Pick short-term trading strategies you are good at.
As seen, investment personalities are unique, and what works for a top investor may not work for you. Blindly copying an investment idea or portfolio could lead to disastrous results.
We hope these tips were helpful. For a deeper explanation of what investments suit your personality, pick up Personality Driven Portfolio from major bookstores, or online here.
About the Author
Sam Phoen, CFA is a former board director at CFA Singapore. He has over 25 years of experience in financial markets, and is the author of two books, High Net Worth Investing and Personality Driven Portfolio.