Sheryl Sutherland says first understanding your behaviour with money and investments is settles most of the issues of how to get ahead with a satisfying portfolio

By Sheryl Sutherland*

"Human nature - and by extension the stock market - is always the same."
~ Francois Rochon

Human nature is funny. When we see a ‘Wet Paint’ sign, many of us are tempted to touch, very lightly, just to see whether the paint is really wet. When we drive past accidents, it can be hard not to look. When we flip through a magazine or click onto a web page and see a quiz, we sometimes can’t help but do the quiz.

One type of popular quiz is the personality test. Life can be confounding, after all – if we can find out more about ourselves, perhaps we can make more sense of our wacky world.

The same is true in the world of investing. It can be instructive – or at the very least, entertaining – to figure out what kind of investor we are. In my investing travels, I’ve run across lots of categorisations of investors. Permit me to share some with you and perhaps you’ll learn a little about yourself.

• The perfectionist worries too much about possible future scenarios and is afflicted with decision paralysis.
• The super-confident investor likes speculation, is responsive to peer pressure and is an easy sale for brokers.
• The gambler loves playing the market, takes big risks and continues to do so in search of a good return.
• The trustafarian feels guilty about her unearned money.
• The fool rushes in where angels fear to tread, makes impulsive decisions and racks up losses.
• The safety-first investor loses the chance of a good return because of risk.

These investors can all be helped simply by the development of an investment philosophy, and the writing of a financial plan with an exit strategy.

Another way to ascertain your investor type is to think about the style of investing you might prefer:

• Are you a value investor? Value investors focus on the fundamentals of companies such as cash flow and likely earnings. They like to buy shares which are undervalued by the market.
• Are you a growth investor? Growth investors look for companies which exhibit signs of rapid growth.
• Are you an income-earning investor? This sort of investor focuses on the likely income returns from debentures or shares with high dividend yield.
• Are you a blue-chip investor? Blue chips are large, well-established companies, often considered to be the cornerstone of a portfolio.
• Are you a small company investor? This type of investor likes small, young firms. They may be risky but they can offer the possibility of a good return.
• Are you a managed fund investor? This investor allows professional money managers to invest on their behalf.

These styles are not mutually exclusive. Your investment approach may be to invest directly into your home market and use a fund manager for offshore investments.

Examine the traits you may have identified and consider where you may need to make some behavioural changes. It’s my belief that understanding your behaviour with money and investments is 80% of your results. A thoughtful diversified portfolio taking a generalist view of the next decade or so is the other 20%.

*Sheryl Sutherland is director of The Financial Strategies Group, and author of Girls Just Want to Have Fund$ – Every Women’s Guide to Financial Independence, Money, Money, Money Ain’t it Funny – How to Wire your Brain for Wealth, and co-author of Smart Money – How to structure your New Zealand business or investments and pay less tax. You can contact her here.