1. I was in a panel discussion with Chris Ng and he shared about using the Big Five personality test to help you narrow down the kind of investments you should do. Thought it was interesting to share some details here.
2. Myers-Briggs is a more popular personality test but I found Big Five to be more accurate based on my own context.
3. Big Five is also known OCEAN which is an acronym for the five attributes – Openness, Conscientiousness, Extraversion, Agreeableness and Neuroticism.
4. I will use my own understanding to decipher Big Five attributes for an investor but I have no psych background, so take it with a pinch of salt.
5. If you are an open-minded person, it could mean that you find yourself constantly exploring new ways to invest. Be it a new strategy, a new product or even using a new broker. The good thing is that you may find great opportunity when it comes to you because you are readily available to take it on. The downside is that you might find it hard to stick to something long enough to see it work.
6. Conscientiousness is a necessary ingredient if you want to DIY your investments. You need to do your own research, read annual reports or look at charts, learn and reflect, keep up with the developments and forming opinions about investment opportunities. These take a lot of effort and not for someone who is lazy or have no interest to do the work. Stock tips won’t work in the long run. Pass the money to someone to manage instead.
7.. Extraverted investors may adopt an approach where he spars investment ideas with others or he likes to talk to company’s management or staff to figure out how the business is doing. Introverted ones are fine with doing solitary research.
8. If you are agreeable, you might believe whatever a guru says. This is not so good for investing as there are plenty of noise out there and you might act on something that is inconsequential or even damaging to your investments. Investing requires a mind to be open to opportunities but at the same time have the mental discipline to differentiate between good and bad information.
9. The last one is the most important – neuroticism. If you are neurotic, you should not even be investing in risky assets. This is because you will be excessively worried by market volatility and the cost of mental health is not worth it. Either invest in something that you won’t worry about (which tends to be very stable) or get someone to manage your investments.
10. Hence, the best OCEAN characteristics for an investor would be an average openness, high conscientiousness, extraversion/introversion, average agreeableness and low neuroticism.