All the investment information in the world is not enough to make money in the stock market. The most successful investors are those who know themselves, according to psychiatrist and investment guru, Dr. Richard A. Geist.

In his book "The Psychology of Investing", co-written by Dr. Lawrence Lifson, Geist states that individual personality traits guide investment decisions. That might not sound like news, but investors tend to ignore their own individual tendencies in favor of what the media tells them to do.

In fact, this herd mentality can have a big impact on the stock market's movement. (What else affects the stock market? Check out World's Wackiest Stock Indicators.)

Financial advisors are well aware of the correlation between investor personality and portfolio success. Their process of getting to know clients includes not only risk assessments, but an evaluation of the words, tone of voice and physical responses clients use when discussing financial matters.

An astute advisor can judge a client's level of patience, need for volumes of data, tendency to overreact to information, etc. They know the key to a happy investor is less about running calculations and more about matching the right portfolio to an investor's personality.

To be a successful investor, just knowing your personality traits is not enough. You have to control them. Evaluate the way you normally respond to financial issues and use it to formulate your investment strategy.

Your innate responses to economic issues can be leveraged by creating internal coping mechanisms. For example, if you know you tend to be an impulsive reactor when it comes to a hot stock tip, create a long data gathering process for investing that takes a week (or just long enough to research the tip). Using a specific research methodology will make you feel like you're doing something in response to the new information without investing immediately.

Investors who understand and control their emotions and incorporate them into an investment strategy tend to feel more confident about their investment choices and are more likely to stick to their investment plans and achieve their financial goals. (Learn more about controlling your emotions to make better stock picks by reading Removing The Barriers To Successful Investing.)

Related Articles
  1. Fundamental Analysis

    Is India the Next Emerging Markets Superstar?

    With a shift towards manufacturing and services, India could be the next emerging market superstar. Here, we provide a detailed breakdown of its GDP.
  2. Mutual Funds & ETFs

    ETF Analysis: iShares Agency Bond

    Find out about the iShares Agency Bond exchange-traded fund, and explore detailed analysis of the ETF that tracks U.S. government agency securities.
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Low Volatility

    Find out about the PowerShares S&P 500 Low Volatility ETF, and learn detailed information about this fund that provides exposure to low-volatility stocks.
  4. Mutual Funds & ETFs

    ETF Analysis: Vanguard Intermediate-Term Bond

    Find out about the Vanguard Intermediate-Term Bond ETF, and delve into detailed analysis of this fund that invests in investment-grade intermediate-term bonds.
  5. Active Trading Fundamentals

    Arbitrage Pricing Theory: It's Not Just Fancy Math

    What are the main ideas behind arbitrage pricing theory? We provide a simple explanation of the model and how to use it.
  6. Term

    Estimating with Subjective Probability

    Subjective probability is someone’s estimation that an event will occur.
  7. Investing Basics

    Understanding the Modigliani-Miller Theorem

    The Modigliani-Miller (M&M) theorem is used in financial and economic studies to analyze the value of a firm, such as a business or a corporation.
  8. Economics

    Explaining Kurtosis

    Kurtosis describes the distribution of data around an average.
  9. Investing Basics

    Explaining the High-Water Mark

    A high-water mark ensures fund managers are not paid performance fees when they perform poorly.
  10. Investing Basics

    Explaining Front-End Load

    A front-end load is a commission or sales charge paid by the investor at the initial purchase of an investment.
RELATED TERMS
  1. Principal-Agent Problem

    The principal-agent problem develops when a principal creates ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Discount Bond

    A bond that is issued for less than its par (or face) value, ...
  4. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth ...
  5. Internal Rate Of Return - IRR

    A metric used in capital budgeting measuring the profitability ...
  6. Return On Investment - ROI

    A performance measure used to evaluate the efficiency of an investment ...
RELATED FAQS
  1. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  2. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  3. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>
  4. What percentage of a diversified portfolio should large cap stocks comprise?

    The percentage of a diversified investment portfolio that should consist of large-cap stocks depends on an individual investor's ... Read Full Answer >>
  5. Why should an investor include an allocation to the telecommunications sector in ...

    An investor should include an allocation to the telecommunications sector in his portfolio, because telecom offers an investor ... Read Full Answer >>
  6. What are some mutual funds that do not have 12b-1 fees?

    Some of the most popular and best-performing mutual funds that do not include any 12b-1 fees in the expenses charged to fund ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!