Blog - Investing Notes

March 20, 2006 - Got a Winning Personality?

What personality traits, if any, support successful investing practices? In their March 2006 paper entitled "An Intimate Portrait of the Individual Investor", Robert Durand, Rick Newby and Jay Sanghani investigate the relationships between personality and both investment decisions and portfolio performance. To measure personality, they apply three perspectives: (1) the "Big Five" personality traits (Negative Emotion-Neurotic, Extraversion, Openness to Experience, Agreeableness and Conscientiousness); (2) psychological gender traits (Masculinity and Femininity); and, (3) personality traits of Preference for Innovation and Risk Taking Propensity. Using personality profiles for 21 Australian self-directed investors along with information about their trading and investment performance during July 2004-June 2005, they conclude that:

• Investors tend to be disagreeable [We thought so!] and risk-taking.
• Individual investors prefer studied portfolio concentration to blind diversification. They believe that success comes more from hard work and skill than from luck.
• More neurotic and more open-minded investors may be inclined to use investment advisers.

The following table, taken from the paper, summarizes relationships between personality traits and investing behaviors. Some possible inferences are:

• Traits for large exposure to stocks: extroverted, disagreeable, less masculine, risk-averse.
• Traits for frequent trading: neurotic, introverted, risk-taking.
• Traits for large-cap investing: stable, introverted, masculine, risk-averse.

The next table, also from the paper, summarizes relationships between personality traits and investment performance. Some possible inferences are:

• Traits for raw portfolio outperformance: extroverted, less masculine, prefer innovation.
• Traits for risk-adjusted portfolio outperformance: extroverted, less conscientious (?), prefer innovation, risk-averse.
• Traits for high portfolio volatility: neurotic, open-minded, agreeable, less masculine, risk-taking.

The paper provides descriptions of all personality traits applied and some information about the survey methodology used to gather information about the participating investors.

In summary, investors/traders may want to consider how their personality traits dispose them toward or away from outperformance.

Note that a sample of 21 is very small, and dependence on voluntary survey responses may introduce self-selection biases.

For related research, see our blog entries of:

3/15/06 for two essential habits of highly effective investors;

9/6/05 finding that individual investors may lose because of overconfidence and thrill-seeking;

8/10/05 on big-picture investing as a framework for outperformance;

6/27/05 contrasting optimistic and pessimistic investment styles;

5/4/05 finding that even professional investors are overconfident;

4/16/05 examining possible links between psychological factors and trading performance among day-traders; and,

4/12/05 on the traits of consistently outperforming hedge fund managers.