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Types of Investors: Which Are You?

Are you a "Power Investor" or a "Make-Me-Safe" investor? A growth investor or a small-cap investor? A "Measured" or "Reluctant" investor? Knowing who you are can help you understand yourself and how you approach making money. Learn about some classifications of investors.

By Selena Maranjian (TMF Selena)
December 10, 2004

Human nature is funny. When we see a "Wet Paint" sign, many of us are tempted to touch -- very lightly! -- just to see whether the paint is really wet. When we drive by accidents, it can be hard not to look. When we flip through a magazine or click onto a Web page and see a quiz, we sometimes can't help but take it to see how we do. One type of popular quiz is the personality test. Life can be confounding, after all -- if we can find out more about ourselves, perhaps we can make more sense of our wacky world.

The same is true in the world of investing. It can be instructive -- or at the very least, entertaining -- to figure out what kind of investor we are. In my investing travels, I've run across lots of categorizations of investors. Permit me to share some with you, and perhaps you'll learn a little about yourself.

Investing personalities
In Mind over Money: Match Your Personality to a Winning Financial Strategy, John Schott and Jean Arbeiter present several profiles of investors. Psychologist and investor Nancy Crays later expanded on them. See which one is closest to you.

The Worrier, a perfectionist, must do well, criticizes her moves regularly, and can paralyze herself into inactivity. She might want to consider avoiding extra-volatile stocks, joining an investment club, and limiting time spent focused on investments.


The Power Investor is overly confident and attracted to speculative stocks. Vulnerable to broker manipulation, he excels in bull markets but slumps in bear markets, when he makes excuses. He should stick to industries he understands, research investments thoroughly, and wait at least 24 hours before buying.


The Inheritor feels some guilt and embarrassment at having inherited money. She's afraid to lose it and needs to learn about investing and portfolio management. She shouldn't think of giving it all away.


The Impulsive Investor is attracted to the glamour of stocks and buys and sells quickly, based on intuition. He falls in love quickly with stocks, and these feelings block objective analysis. He should research before buying and should write down expectations and standards for selling.


The Gambler is addicted to the thrill of "playing" the market, without much research. She focuses on winners and forgets or rationalizes losses. She takes bigger risks to try to make up for losses and thinks success is around the corner. She should stop trading and learn long-term investing. (She might need to contact Gamblers Anonymous.)


The "Make-Me-Safe" Investor is risk-averse with low confidence. Seeking guarantees, he earns low returns that don't keep up with inflation. He should learn more about investing and gradually move into mutual funds and stocks. An investment club could help, too.


The Psychologically Successful Investor has developed an investing philosophy and sticks to her plan. She's self-confident and patient with reasonable expectations. Willing to learn more and to change her mind, she treats mistakes as learning experiences. She listens to others but relies on her own judgment. She should keep doing what she's doing.
Investing styles
Another way to think about what kind of investor you are is to think about the kinds of things you invest in and the risks you take. Here's a brief, non-comprehensive rundown of some of the main investing approaches (we've got newsletters available for some of them -- check out a free sample of one or more):

Value investors: These folks focus on fundamentals of companies, such as cash flow and expected earnings, aiming to buy stocks for significantly less than they deem the stocks to be worth. (Try our Motley Fool Inside Value newsletter.)


Growth investors: These investors seek rapidly growing companies. They're frequently ready to pay top dollar for such companies, expecting stock values to keep rising as the company grows. (Our new Rule Breakers newsletter addresses these folks.)


High-yield investors: These folks are primarily looking for cash-generating holdings that offer modest risk. They tend to focus on bonds and stocks with high dividend yields, such as real estate investment trusts (REITs) and preferred stocks. (Look no further than our Income Investor newsletter.)


Large-cap and blue-chip investors: These investors prefer large, established companies with proven track records of profitability, such as Procter & Gamble (NYSE: PG), IBM (NYSE: IBM), General Electric (NYSE: GE), ExxonMobil (NYSE: XOM).


Small-cap investors: These sorts are drawn to smaller, younger firms, which can be risky but also offer the chance of greater reward, as they can grow more quickly. (Check out our Motley Fool Hidden Gems newsletter.)


Mutual fund investors: These people choose to invest in mutual funds, where their money either keeps pace with a particular index or is invested in holdings selected by professional money managers. (Learn more about our Champion Funds newsletter.)


NAIC investors: These investors follow the teachings of the National Association of Investors Corp., the respected association that has promoted investment clubs around the world for 50 years.


CANSLIM investors: These people follow the approach advocated by William O'Neill and the newspaper Investors Business Daily. (Try the newspaper for free.)
All these styles are not necessarily mutually exclusive. Your personal investing approach can easily incorporate several. You may look for large-cap companies that are good values, for example, or high-yielding mutual funds.

One more set
Merrill Lynch Investments Managers recently released a report on a set of four investor types, along with some insights into them. A summary:

The Measured Investor regularly rebalances his or her portfolios, invests regularly, avoids concentration in a single investment, and is committed to an investing plan. The main weakness is holding onto losers and/or not taking profits soon enough.

The Unprepared Investor understands the importance of investing and is open to learning about it. He or she tends to make lots of classic errors, such as investing too little or too late, trying to time the market, ignoring taxes and expenses, and more.

The Reluctant Investor gets rid of losing investments, avoids concentration in a single investment, and doesn't chase "hot" investments. But he or she is prone to invest too little or too late and to inadequately diversify or inefficiently allocate assets.

The Competitive Investor invests regularly, starts investing early, puts as much money as possible into his or her investments, and regularly rebalances his or her portfolio. But he or she also tries to time the market, holds losses and/or fails to take profits, buys things based on past performance, and fails to adequately diversify or ignores asset allocation.

Which brokerage is for you?
The kind of investor you are should determine, to some degree, which brokerage is best for you. If you trade frequently, for example, your best bet may be looking for a brokerage with very low trading commissions. But if you rarely trade, you might do better with a brokerage that charges a bit more per trade but offers lower fees in general and/or other attractive perks.

Last year, Rex Moore wrote an article titled "Rating the Low-Cost Brokers," wherein he described which brokerages might be best for various types of investors. Check it out, and then drop by our Broker Center, where you can learn more about a bunch of brokerages and can see whether one seems right for you.

The psychology of investing
If you're intrigued by this stuff, keep reading. Here are some informative articles on the fascinating psychology of investing:

Are You a Homo Moronicus?
The Psychology of Investing
Vegas Psychology
Munger on Human Misjudgments
Rational Choices
Selena Maranjian thinks it's hard to beat buttered Brussels sprouts. For more about Selena, view her bio and her profile. You might also be interested in these books she has written or co-written: The Motley Fool Money Guide and The Motley Fool Investment Guide for Teens. The Motley Fool is Fools writing for Fools.