Wouldn’t it be cool to see a scan of your brain each time you made an important financial decision? You could learn what areas of your brain light up, and use the feedback to make better decisions in the future. Well, since hauling around a neuroimaging machine would be impractical, it is more reasonable to explore some of the personality traits that influence investment decisions. I’ve written on the topic of emotion and investing, so let’s take it to the next level. There are 2 key pockets of behavior that play a role in how investors make decisions. Personality traits are not inherently good or bad, and I am not advocating judgement or criticism, or even that people should change the way they are wired. But by gaining a better understanding of yourself, you will see that in a random and inconsistent world, your responses and behavior are actually quite consistent. This is why you may look at the actions of someone else as completely ridiculous, while to them it seems quite natural. As a blind skier guide, I learned the different ways that adults learn – thinker, feeler, seer, doer. Understanding these learning-style differences helped me become a more effective instructor. I also learned how to vary my approach and style in managing employees using the different Myers-Briggs personality types – introversion/extroversion, sensing/intuition, thinking/feeling, judging/perceiving. Simple generally trumps complexity, so I’ve organized the investor traits that into two key areas:

Perception: Those driven by perception follow feeling and intuition. The Perceiver likes to interpret surroundings and add meaning to things, and often stays open and thus not completely committed to ideas.

Thinking: Those driven by thinking utilize logic and concrete experiences from the past. The Thinker needs data and consistency and may have trouble dealing with ambiguity.

Both profiles can be outgoing or more reserved, and may have varying levels of awareness of themselves and the world. These personality factors help us understand why we feel more comfortable in certain circumstances, and great discomfort in others. These factors also give insight into how people react and behave, because we all strive to get back to our most comfortable way of living in the world. Adrenaline junkies just don’t feel right unless they are chasing their next adventure, while introverted philosophical types prefer solitude and quiet. Most of us fall somewhere in between.

Investors and react to various economic and market environments in different ways, and there are strengths and draw-backs to both types.  Enjoy, and hopefully this will help you become a more self-aware investor and improve your performance!

© 2013 Pawleys Investment Advisors, LLC. All rights reserved.

One of my strongest beliefs is that the emotional side of money and investing is the most powerful yet often overlooked factor.  Emotionally charged investment decisions almost never pay off, whether they come from a basis of fear or greed. When creating or updating an investment plan, you need copies of your financial statements and a calculator, but I think more importantly, you need to build an acute awareness of how emotions have affected your behaviors. Emotions may cause distraction, and force decisions that are centered on factors outside our control. Effective plans are built on making decisions that center on controllable factors. Money decisions are a reflection of ourselves, and affect how we relate to one another in very complex ways. The most successful plans are driven by decisions that come from a confident yet humble outlook. It is important to continually try to improve your investment plan, and consideration of the emotional side you will supercharge your efforts.  Let’s look at a few writing exercises that can help you build better balance:

1. Write down the 2-3 best and 2-3 worst financial decisions you’ve ever made (they can include spending decisions or investment decisions). In thinking back, what factors influenced your decisions, and were there any emotional components? Was the speed of your decision a factor, if so, how?  What would the outcome have been if you had done something different?

2. Think about how money factors into your family relationships. Who has affected your attitudes about money, and how (include both positives and negatives)? Do you know anyone who has gained or lost significant amounts of wealth, and has this affected you? Honestly ask yourself if you feel either entitled, or perhaps not worthy of having or building wealth. Do you use money to affect your relationships, if so, how, and is this behavior ok?

3. Evaluate your spending habits. Some people are overly constrained, while others tend to launch into unnecessary spending binges, where do you fall? Have emotional factors in your life influenced your habits?  Have you ever overthought a decision to the point of paralysis, causing you to miss out on an opportunity?

4. How do you collect information about the stock market? Is your process systematic or random? Do you have an objective methodology to offset the barrage of random and inconsistent news and information? How often do you get overly focused on information that later turns out to be moot?

Being confident yet humble as an investor is critical to success. Nobody ever built substantial wealth by investing in overly conservative fixed-rate CD’s and cash. On the flip side, the most successful investors acknowledge and learn from their mistakes, while others fool themselves and everyone else into thinking they are a stock market genius.  Continually evaluate and improve your approach, and you will be a wildly successful investor.  Exploration of the emotional components will enable you to be proactive and make your outcomes even better! Hopefully you found this exercise to be helpful and as always, please e-mail or call me with any questions, I really love hearing from everyone! -Katy

© 2013 Pawleys Investment Advisors, LLC. All rights reserved.