DEFINITION of 'Bailard, Biehl And Kaiser Five-Way Model'

The Bailard, Biehl And Kaiser Five-Way Model is a model that defines five different investor types or categories, first developed by noted economists and fund managers Tom Bailard, Larry Biehl and Ron Kaiser. The Bailard, Biehl and Kaiser (BB&K) Five-Way Model defines investor personalities based on their confidence level and preferred method of action. This model grew out of the Barnewall Two-Way Model of investor types, which categorized investors as either active or passive in orientation.

The five categories thus defined are - Individualists, Adventurers, Celebrities, Guardians, and Straight Arrows.

BREAKING DOWN 'Bailard, Biehl And Kaiser Five-Way Model'

The BB&K classification system enables investment advisors to target the right kind of clients for their particular business specialty and provide a higher level of service. For example, an advisor who specializes in aggressive option strategies would be better off targeting his or her marketing efforts to celebrities rather than guardians.

The BB&K model specifies the following 5 investor personality types:

  • The Adventurer: Adventurers tend to hold highly risky and un-diversified portfolios because they are confident and willing to take big chances. Their high level of confidence leads them to make their own decisions and makes them reluctant to take outside advice. This presents a challenge for an investment adviser trying to convince an investor to diversify or reduce risk taking.
  • The Celebrity: Celebrities enjoy being the center of attention and so like to get caught up in popular trends. They may hold opinions about some things but at the same time recognize their limitations and so are usually willing to seek and take expert advice about investing.
  • The Individualist: Individualists are independent and confident. They like to make their own decisions, but only after they have carried out careful analysis. This doesn't mean that they are necessarily difficult to advise because they will listen and process information rationally if presented in a logical manner.
  • The Guardian: Guardians are risk averse - cautious and concerned about the future. As people age and approach retirement, they may become guardians as their risk tolerance naturally declines. If they invest on their own, their portfolios tend to be overly risk averse, heavily weighted to cash or risk-free assets such as Treasury bonds or guaranteed annuities. They are concerned about protecting their assets and may seek advice from those they perceive as being more knowledgeable than themselves.
  • The Straight Arrow: Straight arrows are sensible and secure. They fall near the center of the graph, halfway between both fully confident and completely anxious and completely careful and completely reckless. They are willing to take on some risk in the expectation of earning a commensurate return.
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