April 5, 2010, 5:00 am

6 Vicious Personality Traits of Independent Investors

by: The Financial Blogger    Category: Investment, Market and Risk
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When it’s time to invest our money, some people tend to succumb to vicious behavioral tendencies, consumed by a kind of weird aura and they develop personality traits that they don’t usually have in their day-to-day lives.

Here are a few personality traits that you should recognize, and preferably avoid having, when you start investing on your own:

#1 Gambling (leveraging)

For some reason (call it greed or “the search for self esteem”), we all want to be the one among our friends with the highest investment return. We all want to have these crazy stories to tell everyone how we made thousands in a single trade. This is when people start gambling with their money on the stock market. Some people talk about “playing the stock market”, those words lead to dangerous gambling 😉

Either they take uncalculated risks in small penny stocks or will leverage (borrow to invest) in order to realize a bigger profit. While my life is a leverage in and of itself, I think it should not be used to swing for a grand slam but as a long term investment strategy!

#2 Frenziness (trading frenzy)

Don’t tell me you ever wanted to have 6 trading screens at home and feel like a big broker on Wall Street ;-). The problem is that some people start “day trading” as if they think they know what they are doing and end up paying huge commission fees just for the sake of trading a lot of stocks. It is usually not a good way to make money on the stock market ;-).

#3 Procrastination

I think this is the foe of the 21st century. We all want to set up our things properly, but we all wait until tomorrow to do it. As such, you never take the time to establish a real and solid investment strategy and you never take the time to analyze your personal finance. This is why several investors can’t make money out of the stock market by themselves… they are just too lazy to do it! For example, I have yet to invest the RRSP contribution I did in January… simple laziness… that’s bad!

#4 Being a Rock Star (Aiming for the Gran Slam)

Then again, the Wall Street Broker syndrome strikes again. Greed is such a powerful sin that it will make you forget the risk of losing money. I actually tried it once and got burned pretty bad (I was playing with cash for my down payment for a house and I ended up borrowing money to from parents in order to buy my property since I lost too much). Remember, if it’s too good to be true, it is because IT IS TOO GOOD TO BE TRUE!

#5 Denial

Several independent investors don’t want to see the hard cold truth and admit that they have made a bad trade. They tend to justify their trading moves based on somewhat irrational explanations and keep thinking that their stock will come back and prove them right. Unfortunately, investing is not about being right or wrong, it’s about making the right trades at the right time 😉

#6 Wannabees (investing without knowing)

The last personality trait is interesting in terms of psychology; I really wonder how someone who doesn’t have any basic knowledge in finance think that they know how to trade because they “second guess” using graphs of previous stock market movements. They want to be knowledgeable but they are nothing but wannabees (ignorance is bliss 😉 )…This could be very dangerous as they may trade without knowing the real risk implied by their moves.

What About me?

I am actually most susceptible to demonstrate 2 of these traits; gambling and being a rock star. I really enjoy taking risks in my life and this translates into my investing behavior… maybe I should but I find it quite exhilarating!

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Comments

Regarding #1, leveraging does not have to be gambling if you know your stock’s fundamentals and risk level.
Overall, you gotta keep both feet firmly on the ground when investing in the stock market and treat like a business, not a lottery ticket 🙂

by: The Financial Blogger | April 5th, 2010 (1:09 pm)

I agree with you. Unfortunately, too many people think about the reward and not the risk while leveraging !

Funny what kind of personalities money (and the possibility of) conjures in people.

I’m on of the procrastinators, but I find myself leveraging sometimes as well. We all do.

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