There are as many different types of stock market investors as there are stocks to invest in. There is no one ‘bad’ type of investor, and there is no group of investors who will do better than the rest of the pack. Each personality type works in a different way. The stock markets need all types of investors to maintain a healthy balance.
These investors sometimes border on fanatics. They read everything on investing, study the stocks, and subscribe to magazines, associations, or newsletters. Their motivation can be to flip stocks and make money fast, or it can be the satisfaction of finding a treasure missed by Wall Street pundits. Whether driven by wealth or ego, this type of investor turns investing into their hobby and even passion.
These investors learn how to read financial statements, market predictions, economic analysis reports, and editorials. They learn the names of the world’s best economists, and are familiar with the London and New York Times Newspapers.
These investors prefer stocks that are rising and promise to be a forerunner for future outperformance. They have one focus, accelerating earnings, from a company which has tapped into a new product or innovation that promises to hit the market hard. There are many approaches to picking stocks, based on a number of factors including stock price behavior, markets, and earnings growth.
These people are often interested in investing their money, but they do not want to spend their weekends studying financial statements, markets, and even weather reports. This type of investor laughs at the good luck mantras and charms used by some investors. They are often happy to put their money in the hands of a broker and walk away.
The passive investor creates a plan, researches stocks, invests, and then patiently waits for a return in the future. A passive investor takes a look at the company’s value, assets, debt, and financial health. They consider market and competition when estimating the company’s opportunity for success. They are not aggressive, or looking for a quick gain.
As long as their looses are not in the high-risk level, they leave their portfolio along. They follow the 10% rule when estimated acceptable loss. Once a stock falls 10% below what they paid, it is time to sell to the bargain hunters.
Bargain Hunter Investor
These investors circle like eagles waiting for the weak and wounded to fall, then they pick up the pieces. Many companies owe their survival in hard times to the bargain hunter. Kmart is one company that pulled through and recovered after Wall Street left it for dead.
At first glance this person may not seem to have a viable place in the market, but looks can be deceiving. This person wants to roll their money over and trade stocks constantly – that is part of the game. They are only interested in research and learning as long as there is money to play with.
There is a fundamental place for Chaos in the universe. Without Chaos there is no balance. The same applies to the stock market. Whether the player is using cash, or self-direct in their 401K, their main goal is to increase their money quickly, creating a feeding frenzy among some stocks, and then walking away before the market balances itself out.
There is a place for all investors, and while there are winners and losers in the market, the important thing is to pick a comfortable place and don’t let anyone force investors out of their comfort zones.