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In this season of investing in your retirement savings plan and America Saves, do you invest objectively or not? Recently a survey completed on the behalf of a mutual fund company found that many investors feel helpless and skeptical, but believe that markets will improve. What’s strange is that most, if not all major indexes (markets) have been on an incredible climb since the summer of 2010. Traditionally, October and November are brutal months for investments, but with mid-term elections in the US, the markets kept on rolling. So, if the markets have been going well for the last 6 months, why do investors feel frozen, helpless and uncertain in January 2010? Even more bizarre, we are reaching levels not seen since 2008 and the nasty word “correction” has been published by several economists of late and yet investors expect that the stock market will continue to rise. The survey conducted in January said that almost 2 of 5 investors described their investment personality as either suspicious or timid while less than a third of investors described themselves as analytical, risk-taking or opportunistic. Let’s take a look at these personalities to see if you invest objectively or not.
Suspicious
The Suspicious investor is one that cannot, despite all evidence, feel comfortable that the recovery is under way. They continue to have strong negative sentiment towards investments in general. The pessimistic pattern is in stark contrast to market returns over the same period. In 2009 and 2010, the Toronto Stock Exchange soared more than 49% in value and is now only 11% below its record peak. And while the markets in the US and Europe have recovered dramatically, confidence for the Suspicious investor has not.
Timid
The timid investor believes that things are going better, even well at times, yet has difficulty committing to their strategy. Not to be confused with the amount of risk an investor can bear when you Determine Your Investor Profile, we’re talking about putting your money where it can work for you. Conservative investors continue to invest in short term certificates of deposit, because they are afraid rates will go up. Growth investors won’t pull the trigger on a trade as they feel the market is already risen too fast, or fear an impending correction. The Timid investor spends an enormous amount of time on the sidelines and can always point at some reason or another to avoid getting in the game.
Analytical
The analytical investor tends to objective, in their analysis of where to invest and hopefully when as well. What do I mean? In today’s era of accessible information, it is almost impossible to avoid making a biased decision on where to invest. There are scores of analysts who, in theory, have objective, analytical reasons to promote an investment. The key for you is to develop a template approach to your analysis (using financial ratios) and to choose a method, such as proposed by the Ivy Portfolio (using moving averages), to decide when to buy and sell. While investor’s attitudes towards the market and their emotions dictate actions, the Analytical investor has the best chance to be objective.
Risk-Taker
The opposite to the Timid investor, the Risk-Taker is so afraid to miss out on good news, they sometimes jump in where there is no good news. Again, not to be confused with the investor profile, conservative investors have been jumping all over corporate bonds despite questions over quality, afraid to miss out on “high-yield” opportunities. Growth investors have been found to jump right into speculative resources such as gold and copper believe they are can’t miss opportunities in today’s global economy. Risk-takers should be careful when it comes to stocks that will be seriously affected if Congress slashes spending. Many stocks depend on federal spending for a substantial part of their revenue and areas such as Healthcare, medical device manufacturers, for-profit colleges and cyber-security businesses would be in some trouble.
Opportunistic
An Opportunistic investor can be one who uses objective information to make sound investment decisions. Many investors have failed to seize opportunities to invest in stocks at bargain prices in the past two years, yet there continue to be many left. Even today, with forecasts of continued growth, many investors are still frozen. Looking at historical price-earning ratios, equities are still on sale. A strong dollar means it’s a great time for investors to increase their exposure to global stocks because they can buy foreign assets at a discount. Buoyed by financial ratios and economic forecasts, both passive and active investors can do well by avoid hype and sticking to their long-term investing plan using Your Ideal Asset Allocation.
So the question that begs to be asked, what kind of investment personality do you have?
Author: Robert
