What Investment Style Would Be Better In Today’s Markets?

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With the markets experiencing sizable corrections in recent weeks, many investors have suffered from market volatility. In today’s digital world, the markets are moving at the posting of a tweet. Therefore, learning how to tailor your investment style to suit your personality is more important than ever.

Knowing yourself is key!

Understanding what type of person you are is crucial. Adjusting your investment strategy according to your personality will help in achieving your investing goals.

What works for you?

Your personality traits may have a significant impact on your investing habits. Not many of us are wired to be exceptional investors, quite the opposite in fact. As a species, we are highly emotional, irrational, and exceedingly loss-averse. As a result, this makes us predisposed to making terrible investment decisions. We buy stocks that are rising in price and sell when the price begins to fall. We hold onto huge losses with the expectation that they will rise in the future. 

Common investor types.

For many, the comfort of index investing may be a prudent option. For more calculated and committed investors with a desire to learn, developing a fundamental approach can be effective.

On the other hand, fast-paced adrenaline junkies may enjoy the thrill of day trading. Short-term hype investors enjoy running from one momentum stock to another, utilizing leverage in the expectation of seeing huge gains. Some investors have faith in their predictive abilities and gamble on stock picks with huge positions.

Hesitant investors may hold out on buying certain stocks and wait for them to dip. Their hopes are to create their portfolio using a fraction of the capital, known as “timing the market”. 

Don’t get carried away by “short-term gains”.

Whilst many novice investors can have joy with their strategy in the short run, they are likely to succumb to changing market conditions at some point. In the scenario below, a momentum investor who had invested before the 1929 wall street crash initially saw significant gains…until the market crashed. This boom-bust cycle has played out countless times over the past century.

In this example, the investor has fallen prey to the growing momentum of the stock and was unable to cope with the market downturn when it eventually came. On a personal level, this investor got carried away with short-term gains and overestimated his/her ability to deal with loss. Essentially, they were swept up by a whirlwind of momentum.  

Understanding the situations which cause poor investment decisions, and how to develop the strategies to maximize your ability to make smart investment decisions is crucial. 

Rely on your systems and not your emotions or willpower. 

With a systematic approach, you can identify the most promising stocks to invest in, based on proven quantitative metrics. By taking advantage of a systematic approach, such as committing to one of our backtested strategies, you will not fall into the pitfalls of many novice investors. Trusting the system, rather than relying on the sentiment is a watertight strategy for all investors. 

Avoid common mistakes.

“It’s good to learn from your mistakes. It’s better to learn from other people’s mistakes” -W. Buffet

For all investors, filtering the financial noise from true signals can be the biggest challenge. As with beginners in any endeavor, early mistakes can be costly and tend to leave a scar in the minds of the investor.  

Perhaps the most common mistake made by novice investors is overcommitting to assets with rising momentum and then selling these same assets when the sentiment surrounding these assets changes. In these cases, an investor may buy stock x after watching a particularly stimulating youtube video that describes why stock x will continue to rise in price. However, the same aspect of this person’s personality that drove them to buy stock x when its price was rising will motivate them to sell stock x when the sentiment changes and its price begins to fall. 

The Aikido Approach – data-driven, systematic, and unemotional.

Aikido [合気道] is a gentle martial art that utilizes the momentum of the opponent for the success of the individual. At Aikido Finance, we have applied this principle, using a fundamental approach to investing that is compatible with all personality types. We have developed back-tested strategies using a systematic approach. Whilst different personalities may find a certain style of investing more entrancing than another, very few investors succeed using an emotional, undefined approach.

Committing to a back-tested strategy gives you the wherewithal to remain calm during times of market volatility, minimizing the panic sales and impulse buys that eat away your gains.

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