Four roles in investing
Filed under: Investing
Are you a person who is full of fresh ideas, or do you tend to be healthily cynical?
Then again, you may be more of the detached observer, or perhaps the type of person who weighs everything up before making up your mind.
Whichever you are, you're likely to fall mainly into one of these roles in life, according to research by systems psychologist David Kantor.
Perhaps we change our personas in different circumstances, but I think it's important for us to recognise who we are to truly understand how and why we make the investment decisions we do. Perhaps in doing so, we can then find ways to improve our performance.
Dark forces are at work in our heads
I read about these personality types recently in a fascinating book, Sway: The Irresistible Pull of Irrational Behavior. It explores the psychological forces that lead us to disregard facts or logic and to behave in irrational ways.
Although not a book about investing so much as human behaviour, it still offers fascinating insights for investors.
Knowing me, knowing you
In analysing families, Kantor found that family members fall into four distinct roles. The roles are reflected in wider areas of life. The first is the "initiator", a person who is full of new ideas and so on. We may think of this person as the growth investor. The second is the "blocker"; the kind of person who spots flaws in an idea and points out the downsides; we'll call this person the value investor.
Then there's the "supporter" -- a person who sides with either the initiator or the blocker; we may perhaps think of this person as the GARP ('growth at a reasonable price') investor. And finally, there's the "observer"; the person who tends to stay neutral and comment on what's going on. We may think of this person as the analyst.
Who do you think you are?
I'm sure we all recognise some of our own traits in these basic personality types when it comes to considering investment ideas. And to break it down to just four is clearly an over-simplification.
But knowing which you tend towards should help you take an objective look at exactly how you make the investing decisions you do.
Of course, each has an important role to play, but particularly the first three. And, as usual in life, none is ideal. I've simplified the personality types in comparing them to investors, though. Perhaps the supporter's role is closest to the ideal as they weigh up both sides of a debate before deciding which way to go.
Personally, I lie much closer to the blocker's role in investing as I believe that when it comes to comparing value and growth, only value can be both. But I think that's a better side to be on than believing every hot new world-beater that comes along with some kind of "no-brainer" techie innovation, or a large hole in the ground that's purportedly worth multi-millions.
Perhaps the most important thing is to recognise who you really are, and to find a way of tempering your decisions in the opposite direction a little. In the same way that a team works best with different specialisms and personalities, it's important to balance your investment decisions.
The best way I know of to achieve this is to explain your rationale to someone whose judgement you respect, but who has a very different character to your own. Finding the right investing partner can be a genuine boon in honing your investment ideas.