Three kinds of investors – conservative investors, day traders and bold ones. It is only fair for us to elaborate on the attributes that differentiate between the classes so that we can highlight the distinctions in investment/trading strategies.
Kinds of Investors – Conservative
A conservative investor is focused solely on the long-term appreciation of value. Such an investor is characterized by infrequent trading activity and typically trusts in the stock market’s general trend of progression. As a result, the investor’s natural inclination is towards a diversification of his investment in order spread out the financial risk expected to be incurred over various periods. By diversifying, the conservative investor dampens the effects of economic downturns and company failures at the expense of sizeable gains. When a conservative investor enters into a fund (mutual or ETF) for immediate diversification, the investor becomes reliant upon the fund manager’s ability to understand the market.
Kinds of Investors – Liberal
On the other side of the spectrum is a day trader, who in the course of a day or several days will typically conduct many market transactions. Swinging on the volatility of investor sentiment to make a profit, the day trader is the person who switches in and out of traffic lanes in order to quickly take profits irregardless of company outlook. While in theory there is a practical aspect to the mission of a day trader, this class typically requires a large sum of capital, market access, research diligence, timing, confidence, and patience that the typical investor lacks. While some investors may feel like they qualify under this category because of their frequent trading habits, only success can truly dictate the classification of a day trader.
Instead of the unsuccessful day trader, there is the class of bold investor. Many investors inherently find themselves categorized as such because they act like a day trader without having the inherent qualities or resources to assert successful day trading strategies. To worsen the façade, such investors typically operate on the conservative investor’s mentality. For instance, these are the investors who are look for a “trade” rather than an “investment” and buy into what they perceive to be a “cheap stock”. Yet when their beliefs betray them in the share price, such investors will typically either “go long” without regard for the company’s outlook or they will panic and “sell out.” Of all the classes, the bold investor is the most dangerous. In light of the do-it-yourself trading mentality that has flourished, it has also become the most prevalent.
Three kinds of investors – summation
Like poker, there are only three options to the stock market “game”: Bet/Buy, Hold, or Fold/Sell. In both instances investors feel empowered to make decisions on little information. While conservative investors will typically rely on fund managers in their diversifying maneuvers, day traders rely primarily on chart analysis. However, bold investors are more reliant upon themselves and their own intuition. While there will be those who make the right decisions of choosing an option, successful bold investors require a larger pool of understanding. Having a feel for an industry’s outlook, the company’s business outlook, the company’s financial outlook, the company’s past, and the investor’s sentiment are all part of the bigger picture that must be formed behind every decision to enter and exit a position in the company. Without such information, an investor foolishly leaves himself drifting in an unknown current instead of swimming to the best location. You’d probably say there are more than three kinds of investors there but the article focused on most common.