Behavioral finance FAQ / Glossary (Investor style)
This is a separate page of I-L or S section of the Glossary
Dates of related message(s) in the
Behavioral-Finance group (*):
Year/month, d: developed / discussed,
Style of investing, trading
00/10i - 01/5i,9i - 02/8i - 03/9i
- 04/9i - 07/10d - 08/4i + see
(investor) profile, personality,
agent-based model, strategy,
psychology, risk attitude,
preferences + eprofile
Is investor profiling taught at Quantico?
And what is your own style?
Money related activities (investing, trading, borrowing, money
managing) are largely driven by differences among players
in styles , profiles , personalities .
Collective behaviors blur often those differences,
but not fully.
See also (investor) personality, investor (profile).
Does personality make the investment style?
Does how you invest tells who you are?
Often the term "resonance" expresses
the similitude between:
A person's specific
practices in managing
The types of assets
and operations it prefers,
Its mode of
information and analysis,
The frequency and
timing of its operations,
Of course those transactions
sizes compared to its
portfolio size: big
or small slices at a time.
That person's basic
* impatience vs.
* optimism vs.
* individualism vs.
* short term vs. long
Has a person a definite style?
This match is not of course an absolute reality as:
Somebody can have different attitudes (for example towards risk)
and preferences in different fields of activities.
Some people might have an appetite for risks in sports but not in
investment, or vice-versa.
Who knows, maybe Napoleon was afraid of small insects.
Somebody can change, or even revert , its preferences
This can happen for example under a shock, or as a delayed response
after an accumulation of external or personal perturbations
Clearly also, the investor situation plays a part in its style.
Although people are not fully conditioned by their (real or
perceived)situation or status, many of those aspects (*)
influence their financial decisions - in a rational way or as a
biased mental anchoring
(*) age, family, education, origin, country, social /
professional position, level of wealth and income,
List of investment style elements
Collecting building blocks that make the profile.
Spot yours in the warehouse!
Various style elements found in investors (and money
managers) are listed below
(usually a style combines several behavioral traits).
They start with the most crucial factor: the risk attitude
(see that phrase).
Risk averse investor
Risk tolerant investor,
risk prone investor (risk
Short term trader
Even hyperactive /
Long term investor
Passive (buy and hold)
Also "buy and hold"
Value stock investor
Growth stock investor
Investor in precise
subcategories of assets /
stocks / industries,
See "profile (stock
Stock picker / focuser.
Capital gain investor
(either growth or value
Domestic stocks trader
...Tax enthusiast (???)
or tax indifferent
(anchoring, loss aversion,
Realist / Forward
Fact digger, doing a lot
(devoting little time
Educated / experienced
/ informed investor
And so on...
For example, see below:
Social differences: genders, social segments...
Investors at the tailor's shop.
Measuring look, size and weight.
Marketing people were the first to identify customer segments and put
those categories in separate boxes so as to apply diversified
Those surveys applied to money matters have found differences of investment
attitudes (mostly about risk )
by gender, education, profession, income, wealth, age, nationality, etc.
For example, strong differences have been found
in risk taking between female investors an male
traders, chiefly young ones (see gender).
More "rational" differences are seen also between
* wealthy vs. poor (risk is a different thing for them),
* young vs. old (different time horizons).
Financial counselors and retailers are, obviously, quite interested
in knowing all those psycho-sociological elements, normally in the
interest of their clients.
Well, we hope, as the danger is, not only baiting, or the use
ofstereotypes, but also that some might sincerely attribute their
own traits and habits to their customers ;-).
Some financial counselors use specialized psychographic tests to
help their clients find the most appropriate investment strategy.
Effect of styles on markets
The asymmetric war between various styles
might distort market prices.
We have here quite a varied bunch of investors and traders,
each having different effects on the market.
Some of them might dominate others in certain periods.
Some traders are much more active than others,
Some have much more financial strength
Big hands vs. little hands, institutions vs. the general public, etc.
Here, market structure is at play (see the causes of "anomaly").
Cancelling out distortions ?
Or distorting things together?
Normally, those diverse styles and individual preferences
would cancel each other and produce an efficient market
where buyers and sellers decisions reach an harmonious
price and return balance.
But the social contamination makes that sometimes
most players bet on the same horses in the same direction.
Here market inefficiency enters the gallop mode.
Agent-based models (see that phrase) are software that
try to simulate the decisions of those various categories,
hoping to make previsions on market evolutions, and
maybe better at predicting disruptions than linear
Also most investment funds adapt their portfolio management to the
"customer target" they chose in the above-mentioned
They can also change their asset allocation between the various
styles(they even can change their managers to be sure to change
styles),as some styles are better adapted in some periods
than in others.
Obviously, defensive and contra-cyclical assets
are preferable to cyclical ones if a recession is in sight.
Also hedging practices will differ.
(*) To find those messages: reach that BF group and, once there,
1) click "messages", 2) enter your query in "search archives".
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