Few
investors
neatly
conform
to
a
single
description.
As
with
heritage,
most
people
have
blended
traits.
(Although
not
all:
my
wife’s
ancestry
report
reads
“99.6%
Eastern
European.”)
But
there’s
no
question
that
personalities
affect
investment
behaviour.
This
article
outlines
the
strengths
and
weaknesses
of
the
three
prevailing
mindsets.
Investors
in
this
group
make
their
own
decisions.
They
consume
investment
research
neither
for
its
counsel,
nor
to
learn
what
others
are
doing,
but
instead
as
grist
for
the
mill.
Such
people
ignore
the
actions
of
the
crowd.
Should
they
see
a
line
snaking
around
a
block,
they
will
not
try
to
learn
what
they
are
missing.
They
will
instead
go
on
their
way
while
pitying
the
line’s
occupants.
Strengths
include:
1)
Buying
Low
Loners
are
not
the
only
investors
who
try
to
buy
low.
Stock
mutual
funds
sometimes
receive
inflows
after
market
declines
because
the
overall
marketplace
believes
that
the
dip
presents
a
buying
opportunity.
Overall,
though,
loners
are
the
likeliest
investor
type
to
sift
among
discounted
securities,
seeking
bargains.
2)
Early-Bird
Gains
Besides
receiving
“dead
cat
bounces” from
securities
that
are
deeply
depressed,
loners
may
also
profit
from
the
opposite
form
of
investment:
highly
expensive
emerging-growth
stocks.
Before
Tesla
(TSLA) was
mainstream,
it
was
owned
mainly
by
iconoclasts
who
discovered
its
story.
The
same
holds
for
all
winning
startups.
Weaknesses
include:
1)
Self-Delusion
Unfortunately,
not
all
that
glitters
is
gold.
For
each
dollar
they
stashed
in
Tesla
or
bitcoin,
loners
squandered
thousands
on
investment
dreams
that
never
materialised.
Sometimes
wisdom
does
in
fact
lurk
within
the
crowd.
Loners
constantly
face
the
possibility
their
“insight”
is
instead
self-delusion –
the
mistaken
impression
they
see
what
others
missed.
2)
Bear
Traps
A
related
problem
is bear
traps.
This
error
has
happily
become
less
frequent,
because
market
timing
has
become
unpopular,
but
loners
nevertheless
tend
to
exit
the
stock
market
believing
they
have
identified
an
upcoming
bear.
(A
little
knowledge
can
be
a
dangerous
thing.)
Once
out
of
equities,
they
have
trouble
getting
back
in,
because
doing
so
before
stock
prices
collapse
would
be
a
tacit
admission
of
failure.
Loners
do
not
always
benefit
from
having
large
egos.
Followers
More
common
than
loners
are
followers,
who
derive
comfort
from
crowds.
Rather
than
walk
past
lines,
they
join
them.
Followers
are
strongly
influenced
by
recommendations –
from
researchers,
the
media,
friends
and
family,
and
internet
boards.
They
seek
investment
allies.
Strengths
include:
1)
Staying
Informed
Followers
listen
to
others.
Doing
so
helps
to
keep
them
knowledgeable
about
investments,
thereby
reducing
the
chance
of
an
unpleasant
surprise.
As
with
inflation,
which
causes
the
most
damage
when
it
is
unanticipated,
unforeseen
investment
losses
carry
the
sharpest
sting.
Followers
who
listen
to
both
sides
of
the
investment
debates
which,
it
must
be
confessed,
does
not
always
occur –
are
well
prepared
for
bad
news.
2)
Trading
Opportunities
By
the
time
followers
learn
of
an
investment
possibility,
the
loners
have
already
found
it.
Word
takes
time
to
spread.
Astute
followers,
however,
may
still
reap
ample
profits
by
arriving
before
the
rest
of
the
marketplace.
Discovering
Tesla
in
winter
2020
was
too
late.
But
buying
the
stock
two
years
before,
when
it
was
well-known
but
not
yet
the
investment
rage,
would
have
been
a
splendid
trade.
Weaknesses
include:
1)
Tail
Chasing
A
fine
line
separates
being
guided
by
the
collective
from
being
controlled
by
it.
Those
who
appropriately
use
investment
information,
by
applying
common
sense
and
at
least
a
modicum
of
their
own
judgments,
can
prosper.
Not
so
those
who
become
bewildered
by
the
investment
gossip,
turned
this
way
and
that,
like
dogs
distracted
by
a fluffle of
rabbits.
Such
is
the
constant
danger
for
followers.
2)
Mob
Mentality
Followers
are
the
most
prone
to
being
harmed
by
their
emotions.
As
anybody
who
has
participated
in
internet
forums
can
attest,
chat
groups
can
quickly
become
mobs.
(Whenever
I
receive
an
openly-insulting
email,
I
know
that
my
column
has
been
posted
on
a Reddit board.)
Investors
may
benefit
from
hearing
additional
views,
but
rarely
will
they
succeed
by
sharing
others’
emotions.
Zombies
Most
investors
are
zombies.
The
less
they
know
about
their
portfolios,
the
happier
they
are.
Consequently,
they
tune
out
the
noise.
Back
in
the
day,
that
meant
owning
a
portfolio
that
had
been
assembled
by
a
stockbroker,
and
then
leaving
future
decisions
in
the
broker’s
hands.
These
days,
zombies
are
typically
401(k)
participants
or
index-fund
proponents.
Either
way,
they
stand
aside.
Strengths
include:
1)
Investment
Discipline
This
one
is
obvious.
To
the
extent
that
investment
success
comes
from
staying
the
course –
a
hoary
cliché,
but
not
without
truth –
zombies
are
perfectly
situated.
They
possess
neither
the
faith
to
make
their
own
adjustments,
nor
the
interest
to
copy
other
investors’.
Their
portfolios
therefore
tend
to
remain
unchanged.
2)
Emotional
Control
In
the
1990s,
many
investment
experts
speculated
that
when
the
long-awaited
bear
market
finally
arrived,
401(k)
participants
would
be
the
first
to
sell,
given
their
inexperience.
They
were
instead
the
last.
During
the
technology
stock
crash
of
2000-02,
401(k)
assets
were
more
stable
than
either
retail
investors’
taxable
accounts,
or
the
portfolios
run
by
professional
managers.
There
is
an
advantage
to
lacking
an
investment
brain.
Weaknesses
include:
1)
Missing
Out
Although
zombies
will
neither
become
ensnared
by
bear
traps
nor
chase
their
performance
tails,
neither
will
they
spot
investment
opportunities.
To
return
to
our
previous
example,
some
people
bought
Tesla
before
the
company
joined
the
S&P
500
in
late
2020.
They
might
have
been
loners,
or
they
might
have
been
among
the
earlier
followers.
But
they
assuredly
were
not
zombies.
2)
Structural
Changes
Over
the
long
haul,
markets
are
very
stable.
Roughly
speaking,
bond
yields
increased
for
30
years,
from
1950
through
1980,
before
subsiding
over
the
next
three
decades.
That
made
for
one
inflection
point
during
the
Depression
generation’s
investment
lifetime.
The
long-run
performance
of
equities
has
been
equally
predictable.
Thus,
structural
changes
rarely
leave
zombies
behind.
When
such
shifts
do
occur,
though,
zombies
are
the
last
to
know.
Wrapping
Up
My
investment
type
can
best
be
described
as
“artificial
zombie.”
That
is,
while
I
am
a
loner
by
nature,
I
have
learned
through
experience
the
difficulty
of
outguessing
the
crowd.
Thus,
I
behave
like
a
zombie,
by
making
few
trades
and
distancing
myself
emotionally,
although
of
course
I
am
much
too
informed
to
be
among
that
breed.
And
you?
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