Types of Investors: Which One Are You?

I wouldn’t exactly call myself an expert investor – my portfolio currently consists of standard mutual funds with my bank. But lately, I have not been terribly satisfied with these and at some point I’d like to go completely self-directed and chose my own stocks. So, I’ve had to sit back and think – what strategy would I take, or what kind of investor am I?

I imagine there are many different approaches to investing which can largely depend on your personality or outlook on life. I would also suspect that they each have their plusses and minuses and could possibly produce a decent return on investment.

After doing a bit of searching around, there appear to be three major types of investors – the number crunchers or technical analysts, growth and finally, value investors.

The numbers crunchers look at trends and analyze constant streams of data to determine which way a stock could possibly go. I would imagine you’d need a fairly good education to be good at this. It also begs the question: do past trends repeat themselves in the same way?

Growth investors look for stocks with great growth potential or earnings that will grow at a rate greater than average. They are looking to maximize their capital gains. With this strategy, I would imagine that you’d still buy an ‘overpriced’ stock, if the growth potential was really high. I’ve seen many situations on the news where a stock appears expensive yet the price keeps increasing – growth investors would be all over this, I’m sure.

Value investors buy stocks which appear to be underpriced. So, what is underpriced? According to value investors, each stock has an intrinsic value – if the stock price drops below this, then you should purchase. Calculating the intrinsic value of a stock could be some work, but thankfully, there are resources on the net that can do the work for you. One site I visit frequently is Moneysense.ca. They actually have calculations for instrinsic values on many companies as well as lots of great articles on investing.

So, what kind of investor am I?

I think I am definitely a value investor. It fits into my personality – I’m not a flashy guy and I like value for my money. Plus, I don’t mind doing a bit of research to find a good deal. I think being a number cruncher is a bit too much work and the growth approach doesn’t really fit into my perspective on life.

I am currently reading a book called ‘The New Buffettology’, by Mary Buffet (former daughter-in-law of Warren Buffett.) It describes in detail how one of the great masters of value investing, Warren Buffett, does what he does. I’ll add it to my list of books to report back on soon!

Even though I’ve chosen value investing, I’m not sure I’ll be exclusively a value investor. There may be times when it may be advantageous to be a growth investor or number cruncher. There is much useful information to be learned from technical analysts and for a while, it was very profitable to be a growth investor and value investing didn’t look so good.

But now that the economy seems to be faltering, value investing will be my choice!

Related posts:
Choosing a Financial Planner
Investing in Stocks - Dumping the Losers
Investing in Mutual Funds