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What's Your Investing Style?

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Know yourself before you make a move.

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In any endeavor, it's important to "know thyself." In the context of participating in financial markets, identifying your investing style is central to self-understanding.

Mapping Investment Styles

Figure 1 portrays one way to dimensionalize the investment-style landscape. The horizontal axis reflects time horizon, or preference for investment projects of various durations. For example, do you prefer to buy stocks like Caterpillar (CAT), Intel (INTC), or Wells Fargo (WFC) and sell them in the near future after a small rise in price (short term horizon), or are you a buy-and-hold type, eying multi-year appreciation potential (long term horizon)?


Landscape of Investment Styles

The vertical axis reflects preference for involvement in investment decisions. Do you like to follow markets routinely and pull the trigger on asset purchases and sales personally (active preference), or are you prone to take a hands-off approach and let someone else do the work?


Hoarders


Crossing these two dimensions maps various categorical investment styles. Quadrant 1 signifies what we might call Hoarders. Hoarders, because of their short-time horizons and passive involvement preferences, typically gravitate toward assets with low-risk profiles, such as money market funds, certificates of deposit (CDs), bonds, and other fixed-income instruments. Such instruments align with Hoarders' short-time horizon while reducing the requirement for frequent attention. For those positions requiring more attention, Hoarders defer to financial advisers or fund managers.


Providers


Quadrant 2 characterizes Providers. Long-time horizons attract Providers toward equities and other risky asset classes that typically require time to pay off. Providers, however, are not particularly interested in hands-on involvement in routine market flow. Instead, this group provides capital to agents (financial advisers, mutual fund managers, hedge fund managers, etc.) for investment purposes. Rather than actively managing their own accounts, Providers usually defer to professionals for advice and decision-making.


Traders


Those possessing short-time horizons and hands-on preference tend to occupy Quadrant 3 as Traders. Traders are attracted to equities and other risky assets, but short-time preference finds them frequently buying and selling positions in order to balance risk and reward. Traders enjoy immersing themselves in market minutiae, and are likely to actively manage their own accounts.


Allocators

Quadrant 4 represents Allocators. Long-time horizon preferences attract Allocators to risky asset classes such as equities. Allocators also enjoy immersion in the routine market flow. Rather than relying on agents, this group prefers to allocate capital themselves. Similar to Providers, Allocators hold investment positions for considerable time (much longer than Traders) in anticipation of payoff. Allocators are likely to manage their own accounts. When working with agents, Allocators retain primary decision-making authority.

A variety of factors influence investment style, such as age, market experience, interest in investing, wealth level, market climate, and risk tolerance. Because levels of these factors are likely to change over time, you may periodically find your investment style migrating to a different category. Personally, my journey has taken me from Provider to Trader to Allocator. As I get closer to retirement, perhaps I'll morph into more of a Hoarder.

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The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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