The 7 psychological qualities of a stock market investor

To handle finances correctly, one must not only have technical knowledge.

As you may have seen in many movies, the psychological profile of the stock market investor is portrayed as a greedy, dehumanized person who only acts out of self-interest... Although this is often the stereotype, nothing could be further from the truth.

In real life, we observe that investors can have very different psychological qualities...which contribute in a more important way than we think in making investment decisions.

In the following article you will discover what is the relationship between psychology and investment through the analysis of the main psychological qualities that characterize stock market investors.

The relationship between economics and psychology

The stock market is about economics, but it has a very close link to psychology.. The market is a reflection of the interactions between millions of people, who make investment decisions based on their feelings and emotions.

Those more experienced investors know that markets rise when investors are enveloped in a feeling of euphoria, and fall sharply when investors are gripped by fear and panic. These factors make the good investor not only a specialist in technical issues related to the present and future of companies, but also a keen analyst of the psychological climate at any given moment. This climate has a direct impact on the revaluation or depreciation of certain companies and markets.

Personal and psychological qualities involved in investment

To understand this whole process, we will now talk about the psychological characteristics that most influence long-term investment.The objective is to understand which are the variables that most affect investors when it comes to managing their own money.

1. Ambition

Ambition is one of the fundamental qualities of the stock market investor. When we invest, we do so with the objective of maximizing the profitability of our savings in the short, medium or long term.

This same quality is the one that makes us research and analyze different markets and companies to detect those excellent businesses that are trading at low prices. To be an investor you have to know how to optimize your time and resources. Thanks to ambition we will be able to set quantifiable objectives to improve our results progressively.

2. Planning

The planning serves us to elaborate our own investment strategy and will be very useful for us to know how we should act in every moment in the financial markets.

The investment plan describes all the rules that our investments will follow, from the market in which we operate, the risk we assume per operation, the indicators we use, or the percentage of money we invest in each company.

3. Adaptability

In a changing environment such as the current one, investors must have a great capacity to adapt in order to detect new trends, growing markets, or possible bubbles that may end up affecting their investments, as in the financial and real estate crisis of 2007.

The ability to adapt is something we can learn from our own experience through the different situations we have experienced in the markets. But we can also learn through reading, analyzing historical events that have changed the course of the markets, such as the crash of 1929, the oil crisis of the 1980s, or the dotcom bubble in 2000.

4. Discipline

Investor discipline depends on several factors, among which we find discipline in our investment strategy and discipline in saving. Discipline in our strategy consists of complying with the rules and guidelines set out in our investment plan.

On the other hand, savings discipline consists of setting aside a certain percentage of our salary each month for investment. Thanks to discipline in these two areas, we will be able to generate good wealth over time.

5. Patience

Patience is not only the mother of science, it is also the mother of long-term investment. In today's society we are used to demanding immediate results to satisfy our expectations quickly.

In investing, however, things work a little differently. Long-term investing is not like the 100-meter sprint, it is more like a marathon in which you must be patient, endure inclement weather and exhaustion in order to cross the finish line.

6. Resilience

Resilience is the ability of people to cope with stress and pressure. In the markets we encounter such situations every day, and it is essential to have a good emotional balance to pick ourselves up every time our emotions and insecurities hit us.

It is during times of crisis that we must be the most resilient. Even if our investments are experiencing heavy losses, it is in this type of situation that the market offers us the greatest investment opportunities, which will offer us excellent returns when the storm has passed.

7. Continuous improvement

Continuous improvement is a quality that allows us to enhance day after day the six previous qualities, that is why it is important to work on our weak points so that our psychological qualities are more robust.

There is always room for improvement in everything, and if we manage to improve every day in the way we plan more efficiently, in the discipline of our investment plan, in the adaptability to new environments, or to be more patient in certain market situations, we will be able to improve significantly as investors. Even more so when the economic system, technology and the agents that influence trends are factors that are rapidly increasing in complexity.

The balance between technical and psychological skills

In order to obtain good results in the investments we make, it is essential to combine our technical skills with our psychological preparation, it is essential to properly combine our technical skills with our psychological preparation..

A person who has excellent technical skills but does not know how to control his or her emotions when investing will consistently lose money on the stock market, as he or she will make investment decisions influenced by greed, fear, panic or euphoria.

So that this problem does not affect us negatively, it is highly recommended to be trained, first of all, in all those investment techniques that allow us to operate in a safe and reasoned way, and to work the psychological part from the moment we start investing with real money.

Bibliographical references:

• Massé, Pierre (1963). La elección de las inversiones. Sagittarius.
• Thorp, Edward (2010). Kelly Capital Growth Investment Criterion. World Scientific.