Investor personality types:

Presentation by:Anup PandeyRoll num:05

• The investor personality test can be used for a quick overview of the type of investor your client is:

Investor behavioral classification:

It has been explained by using two models: 1. Bailard, Biehl, Kaiser (BB&K) model. 2. Barnewall model.

Five way model:Level of confidence on the vertical axis.Method of action on the horizontal axis.

Individualistic Adventurer

CONFIDENT

GuardianCelebrity

ANXIOUS

CAREFUL IMPETUOUSSTRAIGHT ARROW

Description:

• The Adventurer: People who are willing to put it all on one bet and go for it because they have confidence.

• Difficult to advise• Willing to take risk• Volatile clients from an investment counsel

point of view.

• The Celebrity: These people like to be where the action is. They are afraid of being left out. They really do not have their own ideas of investment.

• Best prey for maximum broker.

• The Individualist: These people tend to go their own way and are typified by the small business person or an independent professional such as lawyer, CA or engineer.

• Trying to make their own decision in life, • Carefully going about things,• Certain degree of confidence,• Rational investors with whom the portfolio

managers can talk sense.

• The Guardian: Typically as people get older and begin considering retirement, they approach this personality profile.

• Careful and little bit worried about their money.• Preserve their assets.• Not interested in volatility or excitement.• Lack confidence in their ability to forecast the

future and look for guidance.

• The Straight Arrow: Well balanced, cannot be placed in any quadrant and hence fall near center.

• On average this group of client is the average investor.

Barnewall model:

• Marilyn MacGruder Barnewall’s psychographic investor model distinguish between two relatively simple investor types:

1. Passive investors2. Active investors

• Passive investors are those investors who gained their wealth passively.

Includes professional like Corporate manager, CA, lawyers, medicos, politicians, bankers, journalist etc.

• Active investors are those individual who have risked their own capital in order to earn their wealth.

• Their tolerance of risk is higher than their need for security.

Entrepreneurs are active investors.

The Eight investor Personality types:

Visual depiction is as: Idealist(I) Pragmatist(P) Framer(F) Integrator(N) Reflector(T) Realist(R)

So there are 8 possible investor personality types:

IFT, IFR, INT, INR, PFT, PFR, PNT, PNR

Idealism/ Pragmatism (I/P)

• Idealist end: Overestimate their investing abilities.• Display too much optimism about capital market.• Don’t seek out information that contradicts their

views• Often disinclined towards thorough research,

they fall prey to speculative markets fads.• They are subject to the following biases: Over-

confidence, optimism, self-attribution, illusion of control, repetitiveness etc.

• Pragmatists end: Display realistic grasp of their own skills and limitation as investors.

• Not too over confident about the capital markets and demonstrate a healthy dose of skepticism regarding their investing abilities.

• Do research for confirmation.• Typically not susceptible to the mentioned

biases.

Framing/ Integration (F/N)

• Framers tend to evaluate each of their investment through a particularistic lens and don not consider how each investment fits into an overall portfolio plan.

• Too rigid in their mental approach to analyze problems.

• Framer’s portfolio appears to comprise disassociated “pots” of money rather than a composite of complementary interrelated investment.

• Susceptible to biases like: Conservatism, mental accounting, ambiguity etc.

• Integrators are characterized by an ability to contemplate broader contexts and externalities.

• Correctly view the portfolio as system whose components can interact and balance one another.

• Flexible in approach to markets.• Not susceptible to the biases.

Reflecting/ Realism(T/R)

Reflectors have trouble living with the consequences of their decision and have difficulty taking actions to rectify their behaviors.

Justify and rationalize incorrect actions and hesitate to own up decisions that have not worked out beneficially.

Susceptible to these biases: Cognitive dissonance, endowment, self control , regret, status quo, hindsight etc.

• Realists have less trouble coming to terms with the consequences of their choices.

• Don’t tend to scramble for excuses in order to justify incorrect actions.

• Assume responsibility for their mistakes.• Easier time with decision making under

pressure.• Not susceptible to any biases.

Thank you!!!