I was thinking a great deal about personality lately and I wondered to myself if there was a link between personality and investment style. Surely there must be some kind correlation since some people are day-traders, some insist on keeping their money in CDs, and others like me that prefer dividend investments. I began searching for the answer and the results are interesting.
The Ancient Greek aphorism “Know yourself” is a powerful concept. The Greeks believed that by understanding your own behavior, morals, and thought, you will be able to better understand the rest of society. One of the rights of passage in business schools of the United States is a personality test to discover your temperament. Sometimes it is tough to take a look at yourself from an analytical perspective and try to understand why you are the way you are.
Two of the most popular personality tests are the Keirsey Temperament Sorter and the Myers-Briggs Type Indicator. They both ask you a series of questions that help distinguish your personality type which is made up of four parameters.
- Attitude (Extraversion or Introversion)
- Information Gathering Functions (Sensing or iNtuition)
- Decision Making Functions (Thinking or Feeling)
- Lifestyle (Judging or Perceiving)
I found a research article that attempts to link personality with investment risk-tolerance versus expected reward. The basic findings were that people tend to act according to their personality instead of acting rationally. Your attitude (Extraversion or Introversion) has no effect on your risk-tolerance.
- Individuals who are Thinking(T) tend to be more risk-tolerant than Feeling(F).
- Judging(J) individuals are more risk-tolerant than Perceiving(P).
- Sensing(S) individuals can tolerate more upside or downside potential than iNtuition(N).
The last test I took put me in the XXTJ category. This is rather unique since an X indicates you are flexible on that parameter. I find the result interesting since I would expect someone that is Thinking(T) and Judging(J) to be more reserved with their investments, but it is the opposite.
You can Google for a personality test or take a look at a short list of tests at TypeLogic.
Happy New Year!
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