Everyone desires some form of independence in making investment decisions. Independence is accompanied by the urge to practice personal responsibility when investing. While it might seem that independent investors do not seek other peopleâ€™s advice, they actually do because they exert influence over a group of people. People with the independent personality live in harmony with others, but they tend to influence investment decisions.
3 Major Traits of the Independent Investor Personality
Independent investors are the opposite of followers and are somewhat similar to accumulators.
1. Research and Consult Wisely
Independent investors are wise and interested in investments and the selection process. They study the financial markets and gather information about an investment before asking for advice. Gathering knowledge and information is critical because the independent investor may use it elsewhere.
2. Believe in Instincts and Take Personal Initiative
Ideas from others do not inspire most independent investors. They prefer creating original ideas because they are naturally self-reliant. Independent investors believe in living their lives and making investments as they desire and not according to societal expectations. Thus, they are great at taking the initiative and following their instincts. At times they are vulnerable to risks because their instincts could be wrong.
3. Critical Thinkers
Investors with an independent approach are critical thinkers and take time to analyze their options. As such, independent investors scrutinize investment processes and financial markets. As they evaluate their options and experience positive outcomes from their decisions, independent investors develop confidence.
Advantages of Independent Investors Personalities
Decisive and Creative
People who take the initiative and create original ideas often find success. For example, a new business idea may have few investors. An independent approach is positive and can lead to future opportunities.
Good Researchers and Learners
Independent investors are interested in learning about the investment process. Their discernment increases their chances of making the right decisions. Investors can take advantage of their qualities and apply them to other areas of their lives.
Shortcomings of Independent Investor Personalities
Biases Possessed by Independent Investors
Independent investors rely on their instincts, research, and personal information. As such, they are vulnerable to making investment decisions that are affected by several biases.
Unfortunately, growing confidence in independent investor personalities sometimes leads to overconfidence. Investors should consider insight from financial advisors and not just rely on their own understanding. Overconfident investors trust themselves even when they are wrong. Not all investors are professionals or experts in investments and finance. Nevertheless, some disregard sound counsel from financial advisors because they are self-reliant.
Independent investors have their own ideas, and as they conduct research, they gather supporting data and information. Confirmation bias causes them to focus on information that supports their own ideas. They conveniently avoid balancing the research of the benefits and shortcomings of their ideas. Ignoring information that is critical of their ideas can lead to greater investment risks.
Independent investors are prone to the illusion of control, primarily because they are overconfident risk takers. Independent investors have this tendency because they take time to study the market. As the name â€œindependent investorâ€ implies, the perception is an illusion because an individual or group cannot entirely control the markets. Investors need to accept that they do not know everything.
Blind Spot Bias
Almost all investors experience blind spot bias. For independent investors, this happens when they decide to trust only their own knowledge. While it is not possible to know everything, due diligence is necessary before making financial decisions or significant investments.
Lack of Moderation
Being an independent investor can be beneficial, but it should be tempered by obtaining advice. There are instances where investors should listen to advisors. A professional financial advisor can offer insight and perspective. Ignoring professional advice and following your gut feeling may cause you to act emotionally. Relying on a specialist in certain areas does not mean you are surrendering to another personâ€™s ideas; it merely informs your decision and steers it in the right direction.
Investors with an independent personality often do not know how to conduct proper research. Reading newspaper articles and listening to or watching news is not sufficient to enable them to make the right decision. Due diligence involves reading materials from reliable sources, trusted experts, and financial advisors.
Independent investors are above average risk takers, mainly because of their overconfidence. This can be problematic when they implement a high-risk idea and they lose. No investment idea has zero risks. However, the objective is to minimize them or choose another viable option. Investors should stop focusing on potential gains and not ignore the dangers of a particular decision. No matter your vulnerabilities as an investor, understanding your investor personality helps you identify and address challenges.
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