Introduction

Personality is the enduring configuration of characteristics and behavior that comprises an individual’s unique adjustment to life, including major traits, interests, drives, values, self-concept, abilities, and emotional patterns (American Dictionary of Psychology).

Personality is generally viewed as a complex, dynamic integration or totality shaped by many forces, including hereditary and constitutional tendencies; physical maturation; early training; identification with significant individuals and groups; culturally conditioned values and roles; and critical experiences and relationships.

Various theories explain the structure and development of personality in different ways, but all agree that personality helps determine behavior. 

Defining personality

There is no hard scientific and prescriptive model of defining personality; practically, a combination of models as opposed to using a single model may yield superior results. Neither is there a conclusive listing of what drives personality and the significant impact of each of the factors in the personality driving mix. The question of whether males or females are more predisposed to assuming various personalities has never been conclusively answered.

Modern personal models include the NERIS sixteen personalities model, the big five model and the Pompian eight factor model. Earlier models include the Myers-Briggs model, Bailard, Biehl and Kaiser (BBK) five-way model and the Barnewall’s Passive-active investor model.

Combining BBK Five-Way Model with the Eight Investor personality types

Eight Investor personality types

Michael Pompian (2006) identified three investor personality dimensions namely idealist (I) v pragmatist (P); framer (F) v Integrator (N); and reflector (T) v realist (R). Each of these is a continuum from one extreme to another. There are eight possible investor personality types IFT, IFR, INT, INR, PFT, PFR, PNT, and PNR.

Idealists overestimate their investing abilities, display too much optimism about the capital markets, and don’t seek out information that contradicts their views. They may see patterns where none exist and believe that their above-average market acumen gives them an extra  degree of control over the outcomes of their investments. They dislike thorough research and can fall prey to speculative market fads. Pragmatists display a realistic grasp of their own skills and limitations as investors. They are not overconfident about the capital markets and demonstrate a healthy skepticism regarding their investing abilities. They understand that investing is a probabilistic undertaking and do research to confirm their beliefs.

Framers evaluate each investment in isolation and ignore how each one fits into an overall portfolio plan. They are too rigid in their mental approach to analyzing problems and do not contemplate exogeneities. The framer’s portfolio comprises disassociated “pots” of money, rather than a composite of complementary, interrelated investments. Integrators contemplate broader contexts and externalities. They view their portfolios as systems whose components can interact and balance one another. They understand the performance correlations between various financial instruments and structure their portfolios accordingly.

Reflectors have trouble living with the consequences of their decisions and have difficulty taking action to rectify their behaviors. They justify and rationalize incorrect actions and hesitate to own up to decisions that have not worked out beneficially. They also suffer from decision paralysis because they dread the sensation of regret, should they miscalculate. Realists” have less trouble accepting consequences of their choices. They don’t seek excuses to justify incorrect actions, and they assume responsibility for their mistakes.

BBK Five-Way Model

The BB&K model classified investor personalities along two axes namely level of confidence (vertical axis) and method of action (horizontal axis).

The Adventurer

People who are willing to put it all on one bet and go for it because they have confidence. They are difficult to advise because they have their own ideas about investing. They are willing to take risks, and they are volatile clients from an investment counsel point of view. Adventurers are idealists hence susceptible to frequent failure.

The Celebrity

These people like to be where the action is. They are afraid of being left out. They may have their own ideas about other things in life, but not investing. Celebrities are generally framers evaluating each investment in isolation ignoring how it fits into an overall portfolio plan or basically not evaluating at all.

Individualists

These include small businesspeople or an independent professional, such as a lawyer, CPA, or engineer. They try to make their own decisions in life, carefully going about things, having a certain degree of confidence about them, but also being careful, methodical, and analytical. These are rational investors with whom the portfolio manager can talk sense. Individualists are generally pragmatists with different shades of the other six aspects.

Guardians

As people get older and begin considering retirement, they approach this personality profile. They are careful and a little bit worried about their money. They recognize that they face a limited earning time span and must preserve their assets. They are not interested in volatility or excitement. Guardians lack confidence in their ability to forecast the future or to understand where to put money, so they look for guidance. Guardians are generally reflectors and hardly idealists.

Straight Arrow

These people are so well balanced, they cannot be placed in any specific quadrant, so they fall near the center. This is the average investor, a relatively balanced composite of each of the other four investor types, and by implication a group willing to be exposed to medium amounts of risk. Straight arrows are integrators, pragmatists, and realists; they avoid extremities.

Conclusion

We have not attempted to silo any person into to a personality type or elevate one model over another. Our desire is that you may explore the subject farther and see how your personality impacts your behavior, your actions, and your economic wellbeing. Therein you may find opportunities for improvement, better decision making and more sustainable wealth, more financial freedom.