How to determine your psychological type of investor – advice from a financier

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Our behavior always affects the result we get. Investing is no exception.

So, in order to successfully invest money, you should determine your psychological type of investor. How to do it and what it means, our financial consultant Yulia Batkalova told on the air of “Ranka Vdoma”.

The presenters are Liliya Rebrik and Kostya Oktyabrskyi.

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– Is it true that the investor's behavior affects the investment result?

– This is not just true. This is a very important part of an investor's success. After all, our psychology and our actions affect the result we get from investments. If a person does not know how to control his emotions, then he can harm himself.

For example, a person invested 100 dollars, and then saw a drawdown. At the moment, the security in which she invested is worth $90. Under the influence of emotions, a person can sell these shares and potentially lose earnings. Because investment is about a cold mind. That is, you need to wait and sell these shares when they will increase in price, and not when there is some minimal drawdown. Because on the stock market, declines happen often.

— What strategy to choose if a person succumbs to emotions?

— I will tell you about my own example, because I have been investing for many years and know where you can take risks and where you shouldn't. My strategy is conservative investing. I support a stable, calm strategy. That is, I have a clear plan of action.

When I first started investing, I looked at which securities are good, analyzed their quality and took into account the risks. If these are shares of individual companies, I looked at their fundamental technical analysis, how they behaved during crises. I chose ETFs and bonds and made a plan of action.

Right now I stick to one strategy. I buy stocks every Monday because it's so convenient for me. If the stock market is open on Monday, it is sometimes a day off. This is how I have been working for many years. If I saw any fluctuations in the market, then I understand that nothing terrible has happened. I just keep going with the plan of consistently buying quality and reliable assets.

— If we feel that we are super emotional today, is it better not to open our brokerage office at all? Do you remember your impulse purchases or failed purchases of securities?

– This happened to me when I was learning from my own experience. There was a moment when I bought real estate securities and saw the first downside. There was a ridiculous figure, a drawdown of 5%, but under the pressure of emotions I sold these papers. Of course, to your own detriment. In fact, this is a vivid example of how a novice behaves.

— Can we assume that the one who invests the last money is panicking? That is, people hope for a miracle, invest money in shares without having a financial cushion.

– Yes. First, the investor should really have a financial cushion. Secondly, it is necessary to invest in parts. That is, it is not necessary to invest the entire amount at once. For example, you have added $1,000 to your brokerage account. Do not spend this amount immediately. Buy $700 worth of stock. Leave the rest in cash, let them lie there.

You will need that $300 when the market goes down. Then you can buy valuable assets. They can be profitably sold when the situation on the stock market stabilizes. The market always “grows up”. It just takes time, so you will have an interest rate, not average, as for a security, but more.

– What types of investors are there? But how to choose a strategy that suits you?

— There are conservative investors, and there are aggressive ones. Frankly speaking, an investor should ask himself the question: “If I see a minus on the account, how will I react?”. The answer should be given to yourself by the time you enter the broker's office. Some person will understand that he does not want to see any negatives. A conservative strategy will suit such a person. It will be possible to buy ETFs, which are many shares in one fund, or bonds. That is, to use conservative tools that have minimal risks.

Among my students there are those who come and tell me: “I am ready to see big downsides, if in the future, in half a year, it will give me income.” An aggressive strategy may suit such a person. However, I advise even such investors to balance on conservative instruments. That is, add at least some bonds or ETFs, but you can focus on the shares of individual companies. These are higher risks, but they are potentially higher returns as well.

– In any case, you don't need to invest your last money, right?

– Of course that the last money cannot be invested. It is 100% necessary to have a financial cushion and cash from a broker to buy the stocks or bonds we need at the time of the drawdown. When the market stabilizes, these assets can be sold profitably.