Your Personality Is Your Investment Strategy

By Stephanie Powers | June 04, 2009 AAA

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.)

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