Introverts Versus Extroverts in the Investment World

Which makes a better investor: an introvert or an extrovery?  Yahoo Finance reported an interesting article on this topic.  A clinical psychologist, Laurie Helodge, explained how extroverts are attracted to investing for the thrill they get from it. Thrill-loving can be an indicator of big risk taking.

Warren Buffet is a very good example of an introverted investor. He has taken risks but those risks were taken after much thought and research. An introvert will tend to gather more research before taking a risk. Introverts are reluctant to spontaneous decisions.

Investing behaviors can be tracked all the way back to our genes. Dopamine is what causes extroverts to get a high from investing by focusing on high achievements. Saratonin is what causes introverts to calm down. Both extroverts and introverts have their share of downsides. An extrovert might act too quickly, whereas an introvert might be overly cautious and miss a great opportunity in relying on more research.

This research is important because it reminds both introverts and extroverts to put themselves in an environment that they can perform at their best. For extroverts, an environment with lots of stimulation and background noise (even if it is just music). For introverts, a low-stimulated and quiet space. "Extroverts can learn when it is time to pull back and gather more information," advises Helgoe. "And introverts can learn when it is time to trust their analysis and push forward."

To read the full article, click here.

Key Questions Mutual Fund Investors Should Ask

1. What are the fund’s expenses? There is a significant correlation between fund expenses and long-term returns. The internal expense ratio is a compilation of various management and portfolio expenses. Different kinds of funds may cost more or less to operate. But, the fund you pick should be at or below the average for funds of its type.

2. What is the turnover rate? High turnover rates (more trading in the portfolio) are expensive. This, in turn, increases the expense ratio. Besides that, stocks or bonds sold at a gain may generate a taxable distribution later in the year. Shareholders prefer not to pay taxes on these capital gains distributions, so funds with lower turnover are popular for taxable accounts.

3. What is the investment style? Performance tends to follow sectors. So, when small cap value funds prosper (not lately), most funds managed in this style will prosper, too. It helps to know each fund’s style in building a diversified portfolio. Funds that drift often arrive at a hot sector too late in the game.

4. Who manages the fund? Not the fund family, but the actual portfolio manager. How much experience do they have? Are they responsible for past performance, or has that portfolio manager moved on to better things?

5. What is the fund’s policy towards holding cash? Cash (in the form of short-term government bonds) is a drag on stock portfolio performance in rising markets. It also provides a cushion when they fall. Who should make strategic cash calls? In general, I’d rather have all stocks in the fund and hold cash (if any) on my own.

6. What are the returns? Compare fund returns with similar investments and time frames. Look towards other funds with similar objectives before deciding whether to buy or sell. Seek good longer-term performance.

No one knows what the future holds, so every investment choice, in that sense, is a guess. But we can stack the odds in our favor by making reasoned, informed, choices.