I read an interesting article in the Wall Street Journal last week titled “Investor, Know Yourself” by Meir Statman. The article is about getting in touch with your feelings if you want to be a smarter investor. Mr. Statman writes that even though choosing investments should be made on reason, there are emotions at play when we choose investments. For instance there is the fear of taking a risk or making a mistake. This emotion can keep us from making a good investment decision and making a good return.
“If we understand how we feel, how we think and what kind of personality we have, we get more insight into the forces that affect our investing behavior. And that might make us smarter investors”, states Mr. Statman.
The article continues with a quiz of eight questions that help you determine how you think. The first question is What are you prepared to lose? This question determines how you balance risk and reward. The second question, Do bad choices bug you? measures your regret which could hinder your actions. The third question is Think you can beat the market? shows the amount of overconfidence you may have. The next question has to do with Attention to Details and measures your conscientiousness, how much thought you put toward your investment. Question number five is titled Life of the Party and determines how much of an extrovert you are. As an extrovert you have to make sure that your assessment of risks and returns are thoughtful. The subject of question six is A Generation of Spirit which determines how agreeable you are. Question seven is titled A Vivid Imagination and measures how open a person is. Finally question eight is A Worrywart? Rating yourself high on this question means you may have a tendency toward neuroticism according to the author.
I took the quiz and came up with the following. As an investor I am cautious and somewhat regretful when I make the wrong choice. I am not overconfident. I am conscientious and not the life of the party. I am middle of the road when it comes to openness and not a worrywart. I will keep these things in mind when investing. Perhaps I could take a little more risk when making investment decisions and not play it so safe. I could be missing out on some lucrative opportunities.
If you are interested, I encourage you to take the quiz yourself. Having more insight into your feelings, how you think and your personality may make you a better investor.
Please let me know what you think with your comments.