Decisions make a lot of difference in our lives. While right decisions at right time can chart a good future, wrong ones can screw things up. This holds true for our finances also. Those who intelligently plan their finances always have an edge over those who invest money in a haphazard manner and without any proper planning. But we also can’t ignore the fact that everybody learns from mistakes. It is human to err, but learning from it and not repeating the mistake is what is expected of a mature investor. Maturity comes over time. To grow up as an investor, it is important to do a self-check to understand the weaknesses and shortcomings which could help rectify them. But foremost is to understand that what kind of investors are we.
Types of Investors
Typically investors can be qualified into 7 broad categories. The first two are Rajnikanths of markets as they are not impacted by any market conditions. These 7 types of investors are:
Only Savers: Majority investors in India are from this category. When you say equity they will look at you as if you were some Andaman tribal people lecturing on GPRS. They never invested a single penny in equities. Their answer to equity is – equity is risky so why take the risk. They are happy with what they are getting but not greatly thrilled, all the same.
Regular Investor: This is a rare breed. They have a long term view over equity. They will never discuss small market events. They are also a bit mechanical in investing. They invest when they have a surplus and withdraw when in need. They are convinced over the fact that equity will beat all other investments in long run. Generally you feel very comfortable in their company as they understand finances & talk sensibly.
Now come the investors who are actually affected by market see-saw or roller costar rides.
Window shoppers: They will be the first to read or get information over an investment but they will never participate in markets. They will constantly float opinions and talk about personal finance but will not dare to risk own money. He is the non playing captain who will never dare to sweat himself but would be the first one to talk about strategies.
Seasonal Traders: These are experienced people but who have earned nothing from the investments. These are generally close to employees of trading house or investing professionals. They live in a fantasy that all the “first news” comes to them. They show they are waiting for the right opportunity to make a killing in the markets. They are irregular investors and have high volumes of trade but what about earnings??… Keep guessing.
Scapegoats: He is basically a friend of financial product sellers. Agents complete majority of their targets form these investors. He takes advice from all… from colleagues, panwala, fellow bus travelers etc. Absolutely, no discrimination at all. He is typical 9 to 5 person busy earning money and managing his daily chores thinking he would be rich someday. Brokers enjoy their money.
The Hi-tech Lalaji: These people are champs of their business and think that they can be successful when it comes to investing too. They suffer from “I know everything” syndrome and do not hesitate to show off there contacts. Their common reactions are – Don’t give me advice….. I have been investing before you were born…. I traded in gold when it was Rs 600 per tola…. Pay for advice? Instead make me your partner …Thinking of meeting Jhunjhunwala ji to discuss a new idea…. They display an experience, you wish you had yourself!
Mr Cool: These investors never panic and hold their nerves at all times. They are cool and confident. They work against herd mentality and are ready to listen to others view points. They take decisions of their own and stick to it. They follow disciplined approach and rarely invest in dubious schemes. They advocate transparency and appreciate the longevity in investments. (Read KISS strategy in financial products)
The last five investor types are affected by market conditions and they re-balance as per their mentioned characteristics.
Recently we interviewed 5 such investors you can check what they replied to similar questions.
Download & read the full Behavioral Finance Guide from here and be a sensible investor.
So you are in which category?? Tough question or big Confession. 🙂