The more difficult question of a
profitable personality

by James L. Fraser
The Fraser Opinion Letter

The personality profile below is from Dr. John Schott, a good friend who uses his training and knowledge to illustrate financial types of investors. This may not seem important when stocks are doing well, but rather becomes influential when the market has stopped going up in a momentum phase and takes time to relocate itself at different levels. The information below is from a USA Weekend of February 6-8, 1998 in an article by Dennis McCafferty.

What Investor Type Are You?

"Doctor" Schott's guide to personality types and investment behavior:

Obsessive-Compulsive

• Neat freaks; squeeze toothpaste tube from bottom.
• Have difficulty spending money.
• When stock falls in price, vow to sell only when it returns to purchase value.

Hysterical

• Dress flamboyantly; cry easily at movies.
• Are more likely to spend an inheritance on a vacation than an investment.
• Find investing boring.

Depressive

• Have trouble sleeping; lose interest in things they once liked.
• Prefer T-bonds to stocks when investing.
• Expect to lose invested money often.

Narcissistic

• Think this article is about them.
• Like prestige cars.
• Invest in "high-flier" companies (Microsoft, Cisco Systems) and enjoy telling others about their successes.

Remedy?
The Smart Investor

• Has healthy sense of reality; most likely to watch a TV show through rather than channel-surf incessantly.
• Don't outsmart themselves in investing by getting too fancy.
• Buy mutual funds, blue chip companies or businesses they know well; don't unload or lose sleep during market dips.

Of course, what ails us is a collapse of the runaway investment bubble into something else that tends to prick comfortable profit swings of investors that get used to the easy phase of making money.
What we have is the likelihood of a new long-term trend that offers both lower equity and bond returns over the next few years. Also, equities should still outperform bonds though you may not see much of a double digit return but rather, if we are fortunate, a moderate single digit return below the long-term average that is somewhere in the 9%-11% area per year. There is no agreement on what type of correction we have, though there is more volatility, which tends to fuel fear.
I look for continued market consolidation for some months, and I do not see a crash. Markets revert to the mean, which is now taking place. Markets also overshoot value targets, then correct themselves without creating a disaster. In a way, we are returning to normalcy, where there is a shift to risk protection because we are more open to fear-induced predictions. This is not helpful to those investor types who are prone to pay attention to the uncertainties around us. Every self-professed authority feels an incentive to predict as uncertain investors want to be told.
Of course, investors need to know what is taking place and the right information becomes your most important commodity. But the smart investor realizes there is no magic formula, as a wide range of unbiased perspectives are needed in order to survive. The problem with the know-it-all forecaster is the intensity of his argument. The smart investor has a better sense of reality and doesn't sink out of control into the pool of information overflow on specific investments without looking at the big picture of what is happening in the real world.
The Internet is a good example of instant information that can be useful, but is often off the wall and not attached to the real world in a manner that you can understand, though there may be enough sensible information for a decision. Democracy and choice are wonderful for all of us, but at times is not easy and truly tiring as we spend time on non-essentials, while hoping for instant gratification. You can be relaxed as long as you know how to conduct yourself in what you need to do to have a successful psychological profile. Strange as it may seem in a world of instant information, it is still true that you have an advantage over Wall Street when you concentrate on investing in something you understand well due to your own particular background and knowledge. Keep an open mind for fresh ideas, but know something about them before you put money in. The stock market is not a gambling casino unless you treat it that way. A good long-term investor will succeed through ups and downs and make a reasonable return. That is what we all aim for, as greed has high costs.
Editor's Note: James L. Fraser is editor of The Fraser Opinion Letter, Box 494, Burlington, VT 05402, 1 year, 24 issues, $100. Fraser provides thoughtful analyses upon (1) prevailing politico-economic conditions, (2) crowd psychology, and (3) popular opinions and predictions, wherein fundamental and human approach opposes mechanistic methods of forecasting.

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