Mark Tier, Author of The Winning Investment Habits of Warren Buffett & George Soros (titled Becoming Rich in hardcover in the United States), has provided a set of tools for you to identify your own trading personality on his website.
He has identifed three different investor archetypes I call The Analyst, The Trader and The Actuary. Each takes an entirely different approach to the market, depending on his investment personality.
The Analyst is personified by Warren Buffett. He carefully thinks through all the implications of an investment before putting a single dime on the table.
The Trader acts primarily from unconscious competence. This archetype, epitomized by George Soros, needs to have a “feel” for the market. He acts decisively, often on incomplete information, trusting his “gut feel,” supremely confident that he can always beat a hasty retreat.
The Actuary deals in numbers and probabilities. Like an insurance company he is focused on the overall outcome, totally unconcerned with any single event. The Actuarial investment strategy is, perhaps, best characterized by the legendary investor Benjamin Graham. It’s also the basis of most successful commodity trading systems.
Check out the tools, and I think you may find the results interesting or even enlightening.
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My Results
Your Analyst score is 30.00The Analyst archetype is personified by Warren Buffett who carefully thinks through all the implications of an investment before putting a single dime on the table.
The Analyst may research an investment for months before making a final decision. He wants to understand as much as he can about any investment before he takes any action. But, the minute he DOES decide to act, he follows the 11th Winning Investment Habit and acts instantly.
Of course, not everyone who prefers the Analyst style invests like Warren Buffett. Far from it.
Every investment style that has, as one of its components, what is loosely called "fundamental analysis" requires the abilities of the Analyst. For example, the Trader who (like Soros) aims to profit from shifts in macroeconomic trends must devote a great deal of time to research so he can feel certain that the trades he enters will be profitable.
Similarly, the Trader who specializes in a few commodities or currencies; the arbitrageur; the investor who specializes in shorting stocks he considers overvalued...to be successful they must all have many of the qualities of the Analyst.
The only exception is the technical analyst or commodity trader who follows a pure Actuarial approach (see below). While this type of investor does not analyze any individual investment, he must, nevertheless, have some of the skills of the Analyst to research, develop, and hone his system.
If your Analyst score is less than 50% it’s important to improve your skills and abilities in this area.
Your Trader score is 86.67
The Trader archetype is epitomized by George Soros who can act primarily from unconscious competence – what most people would call “intuition.”
The Trader can also act decisively, and instantly on incomplete information, trusting to his "feel for the market."
One ability that sets the Trader apart is that he never hesitates. He is always prepared to take instant action, especially when the unexpected occurs.
He is also capable of comfortably handling situations that, for most people, would be sources of great stress.
If your Trader score is less than 40% you’d be advised to avoid trading or speculating entirely.
You can invest successfully, even if you do not have the predisposition of a Trader, by steering clear of investment methods that require quick decisions and fast action.
Needless to say, regardless of your investment style there can be times when the skills of the Trader would come in very handy. So it would still pay you to improve your abilities in this area, even if your personal investment system isn’t centered around trading.
One way is to improve the certainty with which you make investment decisions: then, when the time comes to act, your course of action will be clear and you’ll have little reason to hesitate.
Your Actuary score is 56.52
The Actuary archetype acts like an insurance company in reverse. An insurance company will write a large number of policies on a similar class of events. For example, the risk that your car will be involved in an accident.
The company has no idea whether your car will ever crash. And nor does it have any idea whether an individual vehicle will experience a minor dent, or be totally written off.
What the insurance company can calculate is the average probability of claims per thousand policies it has written. And provided it has priced its policies correctly, it can be sure of making a profit – regardless of what happens to any individual automobile.
In the same way, the Actuarial investor has identified a class of investments that he knows -- if he buys them at the right price -- will make an overall profit, regardless of whether he suffers a loss on any individual investment. Like the insurance company, the Actuarial investor’s primary focus is on probabilities.
The legendary investor, Benjamin Graham, would only buy a stock at 35% to 50% of its liquidation (or breakup) value. Since he only investigated the numbers, and did not look at the management or the company’s products in any detail, he had no way of knowing in advance whether any single stock he bought would be profitable.
But he did know that by purchasing a large number of such stocks at the right price, he would make money overall.
Like other Master Investors, Graham did not operate solely from this one perspective. Indeed, as the author of the classic investment books, Security Analysis and The Intelligent Investor, he is also known as a Master Analyst. Which indeed, he was. That’s how he identified the stocks he bought – but his investment system was actuarial in nature.
The extreme example of an Actuarial investor is the commodity trader following a computerized trading system whose buy and sell instructions are generated and placed automatically by the computer.
His focus is not on any of his individual investments. He spends his time attempting to improve the reliability and profitability of his system.
One of the essential components – for such an approach to be successful – is a set of strict money management rules that limit the amount of your overall capital put at risk in any individual position to a small percentage of the entire portfolio. As a result, his portfolio will usually consist of a large number of individual investments.
If your Actuary score is less than 25% you would be advised to improve your understanding of probabilities and how they can be used in the investment world.
The Master Investors like Warren Buffett, Carl Icahn and George Soros can each act from all of these styles. Nevertheless, they each have a clear predisposition for one particular style.
So, should you wish to be a great investor like them, you’d be advised to master all three styles even though you will primarily act from just one of them.
If your ambitions are not quite so lofty, it will pay you to be clear about the style you prefer. And to choose an investment area that’s compatible with it.
One of the secrets of the great investors’ success is that they develop investment methods that are compatible with their personality.
