There are four basic types of people, each with differing mindsets when they approach investing; the Sideliner, the Gambler, the Hobbyist, and the True Investor. If you want to be a serious and successful investor, you will need to mindfully recognize the erroneous attitudes of the Sideliner, the Gambler, and the Hobbyist.
The Sideliner Sideliners aren’t afraid to take action as long as they are in the audience where they won’t ever get bruised. They shout, stand, clap, loving the action of a bystander. Sideliners love the excitement of stock market news and the investor’s game. They often look at how the indices or a stock or a fund performed. Observation alone, never gets you in the game of investing. Sideliners may feel it is dangerous in the arena of the investor.
The downside Sideliners are analytical who love running numbers hoping to reduce most of the risk, comparing return percentages, yet out of a paralysis of information, fear sets in and they make minimal purchases just to play it safe. The sideliner is a silent observer possessing discernment for weighing facts, yet who witnesses other people’s investment success without taking any action to enjoy investing personally.
The Gambler These people are sanguine thrill seekers, who unlike the Sideliner, enjoys the casino, horse race, or scratch and win tickets. He or she confuses play gambling with risk tolerance, spends recklessly, considers that investment principles are for misers, and doesn’t seek the guidance of an advisor and consequently has a retirement portfolio that looks broke.
The downside The Gambler is comfortably numb and usually gets punished with frequent losses for taking above-average risks. They might buy an investment based on listening to the talking heads in the trading media, buy penny stocks, or low-priced failing company stocks — all based on uncredentialed hearsay. Because they think that they might make some fast money, they think they are investing, but they are not. Rarely does a Gambler stay invested for the long term.
The Hobbyist He or she buys things and investments on the basis of their emotional value, more than on investment value. As collectors they buy for popularity status, notions of status, aesthetic gratification, and pleasure.
The downside Hobbyists, when excited, may jump to buy anything that is referred to them by word of mouth or a talk show host. They may own all the British Royal plaques on a wall or the top “500 must see movies before you die”. Financial perspective gets lost because several investment funds may be bought by virtue of historic popularity instead of the potential for future gains. Because collections have been known to go up in value, they think they are investing. They do not understand the old latin proverb “Non Quantum Sed Quale”, meaning it is not the quantity, but the quality that counts.
The True Investor Utilizing an advisor’s wisdom, they buy good investments. Unlike Sideliners, they act. Unlike Gamblers, they minimize risk. Unlike Hobbyists, they buy on the basis of investment value. Investors are defined by their knowledgeable expectation for financial gain employing a principled process to minimize financial risk. Many also make it their practice to utilize professional managers and advisors when investing.
True investors act the part, with a vision to achieve excellent returns on their investments while exposing themselves to mitigated risk that suits their investor profile while enjoying the actions that lead to real financial success. It all comes down to how you think and if you’re thinking towards taking investment action.