To the educated trader, personal psychology is the real difference between winning and losing. One of the many issues to examine within your personal psychology is your particular personality.
According to a 2004 study by Merrill Lynch Investment Managers:
Your personality is losing you money — not the market, silly. All investors make mistakes; it is all part of the learning process. That is a given. But what isn’t so obvious is that an investor’s personality has a big hand in determining what investing mistakes he or she is most likely to make. That was a key finding of a study done by the research firm of Mathew Greenwald & Associates Inc. for Merrill Lynch Investment Managers. Merrill divided the investors into four distinct personality types. See if you can find a match for yours…Measured investors are secure in their financial situation and confident they will have a comfortable retirement, Merrill Lynch said. These investors are least likely to say they waited too long to start investing or that they haven’t invested enough. Moreover, they are least likely to be plagued by emotions such as fear and anxiety that commonly cause investment mistakes. The most common mistake is not letting go of losing investments. Reluctant investors don’t particularly enjoy investing and prefer to spend as little time as possible managing their holdings. Not surprisingly, that group was the most likely to have a financial adviser, so that’s good for people like Merrill Lynch. Reluctant investors are least likely to become overly attached to an investment or to put too much money into a single holding. Competitive investors enjoy investing, are informed and try to beat the market. They are most likely to have started investing early, to put enough money into their in-vestments and to invest regularly. On the downside, their enthusiasm for investing “can be a detriment if left unchecked,” says Hannah Grove, chief marketing officer of Merrill Lynch Investment Managers. Competitive investors can have a hard time letting go of losing in-vestments, often dedicate too much of their portfolio to one stock or investment and tend to be greedy and chase hot stocks. Last, there are the unprepared investors, characterized as unhappy with their financial situation and lacking in confidence. They tend to start investing late and are the least likely to re-balance their portfolios. The survey involved 1,000 U.S. investors who had annual house-hold income of at least $75,000 (U.S.) and at least $75,000 in assets to invest. When asked for the reasons they make mistakes, 64 per cent said they just happen.
Another type of personality test worth examining is the Myers Briggs instrument That can be taken at KnowYourType.com. As always these are tools or guides. When it comes to psychology nothing is perfect or one size fits all. The key is to be open to new information and be wise enough to keep your ego in check — all bottom line traits to winning in the market.
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