Your Personality Matters in Your Investment

What kind of person are you？

Nervous or relaxed? Extrovert or introvert? Cooperative or hostile? Attentive or careless? Open-minded or conformist?

Think about it for a few seconds. Pause the video if necessary.

Why think about these questions about your personality traits?

As Buffet said, the most important quality for investors is temperament, not intellect.

We have our own personalities. However, it is hard to know ourselves clearly due to the complexity of our personalities.

Sometimes you think you are eager for achievements, but in fact, you just want to live a comfortable life.

Maybe you think you want to be an explorer, but actually you hate sailing.

When it comes to investing, some people think they are long-term investors. But they always find it is not true when the stock price fluctuates.

The investment behaviors of these investors are not consistent with their personalities. It is hard for them to get satisfactory results by effort.

Such inconsistency is a barrier we create. It may cause the greatest pain in investment.

To remove the inconsistency, we can make investment decisions based on our personality.

Now we turn to these questions. What is personality? How is it related to investment?

Personality refers to those relatively stable and predictable qualities owned by a person. They are not easily altered by situation and time.

The leading paradigm of personality is the Big Five, the 5-factor model of personality traits.

The five factors are neuroticism, extraversion, agreeableness, conscientiousness, and openness to experience.

First, neuroticism.

Neurotic people are emotionally unstable.

They are prone to be depressed, anxious, and angry. And they find it difficult to control emotions under pressure.

Investors with high neuroticism tend to be appealed by risks. They have higher risk tolerances, but often make investment decisions on impulse.

In contrast, investors with low neuroticism are emotionally stable, but sometimes they may be too relaxed.

Are you neurotic? Is it hard for you to fall asleep when the market falls?

Second, extraversion.

People with high extroversion are social, enthusiastic, and talkative.

Extraverts tend to take on more risks for their need for extrinsic stimuli, so they are more likely to suffer great losses.

Introverts tend to be inspired by intrinsic motivation, but might miss important information.

Will you discuss with others or do research yourself before investing?

Third, agreeableness.

People with high agreeableness are trusting, empathetic, and cooperative, but maybe dare not to speak differently even when seeing a dangerous investment signal.

Those low in agreeableness tend to be irritable and hostile. So it's difficult for them to get help from others.

Will you actively express your opinions if you have different views?

Fourth, conscientiousness.

Conscientious people are careful, diligent, and rigorous.

They focus more on long-term goals and rules, but sometimes lack flexibility and may lose potential profits because they tend to be risk-adverse.

Have you made a plan involving all possible emergencies before investing?

Last, openness to experience.

People with high openness are imaginative and curious. They're more likely to seek new experience in investment.

To know better about your personality, you can complete relevant tests like the Big Five and spend more time observing yourself.

Then you can customize specific interventions to take advantage of your personality and avoid its disadvantages.

Here are some tips.

Relaxation training might be beneficial to neurotic investors. It can reduce their impulsive investments.

It would be better for extroverts to prepare plans for market emergencies.

Conscientious people who lack flexibility might not be suitable to do many short-term trades.

Do you have any other ideas? Please share them with us.