What is Your Investor Style?

After making a few trades in 2011, I feel born gain. To be honest, I had totally let my portfolio flow in 2010. My non-decision-making attitude was not driven by either fear or uncertainty; it was driven by laziness!

At times, I would rather work on my business (that pays me the highest dividends!) than look at my investment portfolio… no wonder I generated a *huge* 0.52% yield in 2010! But things are changing this year and I am a more active investor. I have also realized that I am going back to my old trading style… the one which gave me the opportunity to buy my first house with my profits back in 2006.

There is a slight difference though; I’m now buying dividend stocks… which I didn’t really care about a few years ago. I have realized that my investor style has tilted from very aggressive to moderately aggressive… Not clear huh? Let me use this analogy to explain different investor styles. I’ve decided to take the Character from The Lords of the Ring to illustrate each type.

Golum: Aggressive and Greedy

The first type of investor would be comparable to Golum. He is quite aggressive and all his moves are triggered by greed. This is the type of investor who will take unnecessary and uncalculated risks just for the sake of making more money.

At one point in my life, I had become a Golum. This is when I took the cash for my 2^nd property down payment and invested in penny stocks 6 weeks before buying the house. I had some “good information” and thought I could pay my house cash… well I ended-up borrowing 5K from my parents because of my market loss (and stupidity!). Sooner or later, Golums of this world pay the price for their greed. Never invest thinking you can make a lot of money in the short term!

Gimli: All out Attack

This little dwarf is courageous and doesn’t mind taking a few hits if this means winning the battle. On the other hand, Gimli never takes uncalculated risks. He is well aware that he must still be standing at the end of the battle to win it.

I had the tendency of playing Gimli with my portfolio for a while. I was young and knew I wouldn’t touch my investments for the next 30 years. Therefore, I was willing to take a lot of risk to buy more growth stocks. When I started trading, I borrowed 19K on my line of credit and started to buy stocks. However, I always kept several stocks in my portfolio and maintained a good  sectorial diversification.

Frodo: Courageous & Meticulous

Slowly but surely, I am becoming more like a Frodo type investor. Frodo is courageous, takes risks but he is also very cautious. While not afraid to jump into the adventure, he will make sure to know what he is doing.

By switching my portfolio toward a dividend / growth portfolio, I’m getting closer to this investor style. I will continue to buy stocks with a great potential for growth (such as RIM and HSE) but I will also cover myself with more stable stocks (such as JNJ, BNS and CVX). I am now trying to reach a balance.

Gandalf: Cautious and Wise

One day, I wish to become like Gandalf; having a great long term plan and to be able to manage it throughout the year. Gandalf seems to know everything and always makes the right move. If he was in the investing realm, he would be Warren Buffet.

I still have a short term vision of my portfolio. I do buy stocks for the long term but I don’t spend much time thinking about what will be the best sector in 5, 10, 15 years. I am still concentrating on the upcoming year and I find it’s more than enough right now!

Aragorn: Building for the long term

Throughout the LOTR trilogy, Aragorn makes several sacrifices without seeking reward. Aragorn sees the big picture; he is looking for the best outcome for his realm. This is how he makes his choices in order to benefit everyone instead of only himself.

This is definitely the definition of a socially responsible investor. While I do agree that we must make socially responsible investments, I find it very hard to make “the right investing decision”. Information provided by companies or SRI indexes are not clear and it seems that everyone has a skeleton hidden in his closet!

Legolas: Calm and Precision

The last character I want to talk about today is Legolas. He is calm and precise. He never wastes a movement or an arrow on an enemy. He knows exactly what he is doing and will wait until the moment is right.

In the investor world, Legolas would be very cautious about trading and management fees. He would not want to pay too much for nothing. He would have a specific investment plan and analysis template (such as an engineer!). He would not trade on panic and would have detailed explanations for why he is making investment moves.

I’m a Frodo but…

I guess it’s hard to be represented by only one character as we all have our greedy side.  We all know how to be calm and how to build a portfolio for the long term. However, I think it’s important to know what your investor type is in order to not fall in the traps or your flaws. What about you? Which kind of investor are you?

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