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What Type of An Investor Are You? (Part 1)
The mandatory provident fund scheme has made every one of us, or each wage-earner among us, an investor. It is therefore important to know what type of an investor you are.
A. Michael Lipper, founder of Lipper Analytical Services which became part of Thomson Reuters in 2008, thought he had seen enough investors over his 40 years in the business to identify some personality types. In his 2008 book Money Wise: How to Create, Grow, and Preserve Your Wealth, he gives the profiles of 10 types of people with different approaches to investing and wealth management. The first three:
The Absolute Investor
As the name suggests, such investors are usually strong in character and have only one thing on their mind—to have specific returns no matter what. They look for high-quality low-risk instruments with long-term returns (often cross-generational). Thus government or sovereign bonds with long maturities and insurance products are their favourites. But Lipper also admits, ‘the world is changing so much and so fast for anyone to seek the certainty of an absolute return.’
The Confident Investor
Fully confident of their investment acumen and skills, this play-to-win investor looks for the best returns no matter what. He goes for high-risk fast-yield stocks based on their short-term performances, and rarely has time for bonds. When he succeeds, he has only himself to thank. When he fails, he lays the blame on others. The great advantage of this confident investor, according to Lipper, is ‘he doesn’t have to spend a lot of time worrying about his portfolio.’ The great disadvantage is, again quoting Lipper, ‘he does not spend a lot of time worrying about his portfolio.’
The Uncertain Investor
An uncertain investor recognizes that investing is an inherently uncertain activity. He does not pretend to have a crystal ball and accepts that things can and often go wrong. His strategy is therefore to have a widely diversified portfolio and prefer value over growth. He always has a healthy stash of cash available so as to buy low or bail himself out in rough times. Ironically, Lipper thinks such investors are the most intelligent investors.
This article was originally published in No. 485, Newsletter in Oct 2016.