Who Is That Investor Behind the Mask?

“This above all: To thine own self be true.” – Shakespeare

“Hi. I’m Andrew Gordon. And I’m an alcoholic.”

I was in the car with Ed, my first wife’s father. I was going to my first AA meeting with him. He was driving, but he still managed to shoot me a quick, exasperated look.

“No, Andrew. I’m the alcoholic. I say it. You don’t have to. You just say you’re with me.”

I knew that. I was just pulling his chain.

“You go to the same AA meetings with the same people and you still have to tell them every time that you’re an alkie?”

“No, I don’t have to tell them. I have to tell myself. I have to know who I am. That’s the first step. Nothing good can happen before that.”

I’m enormously pleased to say that Ed will be celebrating his 20th year on the wagon later this summer. But that’s not the reason I’m telling you this little story. I want to make a point about you.

Not about your drinking habits – about your investment habits. Because, as an investor, knowing who you are is the first step. Nothing good can happen to your portfolio before that.

It’s likely that who you are is not the same as who you think you are. You probably think of yourself as a semi-knowledgeable dabbler in stocks and bonds… who may not always be right but makes reasonable decisions most of the time… and who is rational and serious about investing.

At least that’s how I thought of myself when I was much younger.

I had some money socked away in a retirement plan. I kept periodic track of it, and it was doing quite well. Of course, at the time, practically everybody’s investments were doing okay. We were in a strong bull market… and you know the old saying about a rising tide.

But then I read or heard that the bull may be ending. I was concerned. And so I called the two experts I trusted the most – my brother and sister.

My brother was a highly successful investment banker working in New York City. He told me to get out as fast as I could. The market could tank any day.

My sister got her MBA from the Chicago School of Business and was working for a prestigious investment consulting firm. She told me to hang in there. The market was just going through some temporary volatility.

I had no idea which one to believe. None whatsoever. They were equally convincing. Both spoke with confidence… and both were looking at the market from the inside.

But the problem wasn’t them (although I thought it was at the time). The problem was me. I had no idea who I was as an investor. I only had a vague definition of myself as a semi-knowledgeable dabbler. They were throwing advice at a blank slate. No wonder nothing was sticking.

I’d never stopped to think of such basics as my risk appetite, my timeframe, and my Big Objective (how much money I wanted in my bank account in 20 to 30 years).

Nor had I ever bothered to break down my knowledge – what, exactly, I knew about the stock market. If I had, maybe I would have been more sympathetic toward the bull argument… or the bear one.

And I’d never bothered to define myself emotionally. For example, was I an unusually nervous investor? When I was calling my brother and sister in a mild state of agitation because I’d heard the bull market might be ending, were others more – or less – nervous about the news? I didn’t know (or care) at the time.

But there’s one thing worse than being a blank slate – it’s being completely wrong about who you are. And the scary thing is, it happens all the time.

A few years back, my workaholic wife bounded into the kitchen and gleefully handed me a piece of paper. She had put together a schedule for her upcoming week – something she had never done before. And she had not only filled in her work hours, she had also set aside time for exercise, reading, TV, and shopping. “I’m starting a new life, starting tomorrow,” she announced.

“Answer me one question,” I said, “How do you feel about your work?”

“It’s the most important thing in my life,” she said.

“I know,” I said. “So throw away this schedule.”

She ignored me – and for the first week, she followed her schedule to the letter. The second week, she had a couple of long working days and slipped a little. The week after that, she slipped a little more. By the end of the month, the schedule and her attempt to reinvent herself were history. She wasn’t true to the piece of paper because she remained true to the one thing she really cared about: her work.

When finding your identity as an investor, do not make the same mistake. You can tell yourself that you’re a calm and rational investor – but if you’re not, writing it or saying it or (most important) believing it, can actually interfere with your ability to invest.

In his book Pit Bull: Lessons from Wall Street’s Champion Day Trader, Martin Schwartz mentions a professional investor who knows that he panics easily. So he took that into consideration when developing his investing strategy. He buys when he feels panicked and is dying to sell… and he sells when he’s giddy and absolutely wants to buy. He deliberately and consistently does the opposite of what his emotions tell him to do.

This is hard to do even when you have a strong self-identity. But without one, it’s impossible.

So let’s find out who you really are as an investor…

• Your tolerance for risk. Do you toss and turn at night, worrying about your investments? Do you panic when the market wobbles? How much risk are you comfortable with in your rational moments? How much of your savings can you afford (psychologically as well as financially) to put at more than minimum risk?
• Your ability to make informed investing decisions. Are you a professional investor who is capable of day-trading? Are you serious about investing, but can only do it part-time? Perhaps your interest in investing is only casual or occasional. Or perhaps you know nothing at all about it… and like it that way.
• Your Big Objective. Whether it’s to be filthy rich or simply to enjoy a comfortable retirement, you must have a clear goal in mind. It could mean the difference between being satisfied with municipal bonds or investing in growth microcaps.

You could be anybody from “Slam’n Sam Don’t Give a Damn” to “Conservative Kate Lovin’ Low-Interest Rates” to “Devil-in-the-Details Dick Can’t Make a Pick.” Once you know your investment persona, you can begin to cobble together an investment approach and strategy that plays to your strengths and disarms your weaknesses.

If you don’t bother getting such an identity, you’ll be in the same situation I was when I got conflicting advice from my brother and sister. But you’ll be in it all the time… because contradictory information is a daily feature of our investing world.

Just today, I read articles on how well (and poorly) the market will do… how much the dollar should fall (and might rise)… and how good (and bad) banks are doing. And so it goes.

At one time, this mish-mash of information would have driven me crazy. But no longer… because I’ve come to grips with who I am as an investor.

Knowing who you are gives you a place and point of view, even if you’re a sniveling, ignorant Nervous Nellie. It’s sort of like being in a Harry Potter novel. Slitherens don’t mind being Slitherens. If that’s who you are, that’s who you are – and there are plenty of others like you.

Self-knowledge means that with every incoming shrapnel of news, you won’t be saying to yourself, “What fresh hell is this?” If you’re a Nervous Nellie and you know it, and that “fresh hell” has just made you very afraid, it may be time to buy.

Yup. The distance between hell and a buying opportunity is knowing who you are.

[Ed. Note: Andrew Gordon, ETR’s financial expert, is the editor of INCOME. Each month, he uncovers income-generating stocks that promise safety (first and foremost), along with much-higher-than-average profit potential.]