17-08-2013, 11:28 PM
By Chris Taylor
NEW YORK | Mon Jul 29, 2013 1:08pm EDT
(Reuters) - Think of the successful Wall Street investor, and you are likely to envision a hard-charging, aggressive, Type-A personality - someone who can carry on multiple conversations, keep an eye on four computer screens, yell over the trading din and watch CNBC all at the same time.
What if you have all that wrong? What if it is the quiet person in the back of the room, and not an extrovert like Gordon Gekko from "Wall Street", who is the superior investor?
Research suggests just that. Many extroverts possess thrill-seeking gene variations that introverts lack, and which are predictors of financial risk-taking, according to Kellogg School of Management professor Camelia Kuhnen. That means bulldozers like Jim Young, the supremely confident broker played by Ben Affleck in "Boiler Room," might be biologically prone to making unduly risky investment decisions, while the quiet introvert might have more solid, research-based instincts.
"Extroverts are often drawn to investing because of the thrill of it," says Laurie Helgoe, a Charleston, W. Va.-based clinical psychologist and author of "Introvert Power", a book about how introversion can be a strength instead of a disadvantage. "They can get caught up in the anxiety of missing out, and if they operate out of that anxiety, they are likely to close down thinking and lose perspective. The investor down the hall with the door closed may be the one to watch."
Behind that closed door you might find someone like Berkshire Hathaway's Warren Buffett - "a classic example of an introvert taking careful, well-calibrated risks," says Susan Cain, author of the bestselling book "Quiet: The Power of Introverts."
Buffett eschews public speaking and works in Omaha far from the frenzy of Wall Street - but produces enviable results. Berkshire Hathaway's compounded annual gain from 1965-2012 was 19.7 percent, thumping the S&P 500 and making for a total gain over that period of 586,817 percent, according to the firm's most recent shareholder letter.
Those returns weren't achieved by taking on crazy gambles, but by adopting a more plodding style of buying shares in big, blue-chip companies and holding them for many years. "Introverts are more cautious than extroverts, but this doesn't mean they avoid all risk. It does mean that they look before they leap, as Buffett is known for doing."
IT'S GENETIC
There may be a biological basis for how introverts and extroverts approach their investments. Gene variations can cause extroverts to seek out a high from the neurotransmitter dopamine, which is traditionally associated with reward-seeking, while prompting introverts to chill out on the neurotransmitter serotonin, which is correlated with a steadier course of well-being and happiness.
If that need for a dopamine fix leads to frequent trading, that would seem like a major handicap for extroverts. After all, most investors are notoriously bad at timing the market: One oft-quoted study by academics Brad Barber and Terrance Odean - finance professors at University of California, Davis and University of California, Berkeley, respectively - found that the returns of frequent traders lagged the general market by a whopping 6.5 percent.
Yet if all it took to be a great investor was a quiet temperament, every introvert would be filthy rich. Shy folks have their own investing handicaps.
Introverts can get so bogged down on detailed research that they miss key opportunities. Their natural inclination towards caution - while protecting them on the downside - can also prevent them from taking the big risks that can lead to big rewards.
"Coming out of the financial crisis, when stocks were cheap, many introverts who were not risk-tolerant did not get invested, and are still not invested. So they missed out," says Michael Pompian, a partner with Mercer Investment Consulting who co-authored a study in the Journal of Wealth Management on how personality type can affect investment choices.
The true ideal might be an 'ambivert,' or someone who can blend the best elements of both, according to Susan Cain. That way investors could maximize the advantages of each personality style, while minimizing the disadvantages.
To help figure out where you fall on the spectrum, you could take a true/false questionnaire Cain developed (bit.ly/fcvOYS). A sampler: "I often let calls go through to voicemail"; "I dislike conflict"; "I prefer not to show or discuss my work with others until it's finished".
With that knowledge in hand, you can then tailor your environment to improve your investment decision-making. Extroverts tend to perform at their best in an arena with lots of stimulation and background noise, like a trading floor, while introverts generally make smarter decisions in a lower-stimulation environment like a quiet office with a closed door.
"Extroverts can learn when it is time to pull back and gather more information," advises Helgoe. "And introverts can learn when it is time to trust their analysis and push forward."
http://www.reuters.com/article/2013/07/2...RH20130729
NEW YORK | Mon Jul 29, 2013 1:08pm EDT
(Reuters) - Think of the successful Wall Street investor, and you are likely to envision a hard-charging, aggressive, Type-A personality - someone who can carry on multiple conversations, keep an eye on four computer screens, yell over the trading din and watch CNBC all at the same time.
What if you have all that wrong? What if it is the quiet person in the back of the room, and not an extrovert like Gordon Gekko from "Wall Street", who is the superior investor?
Research suggests just that. Many extroverts possess thrill-seeking gene variations that introverts lack, and which are predictors of financial risk-taking, according to Kellogg School of Management professor Camelia Kuhnen. That means bulldozers like Jim Young, the supremely confident broker played by Ben Affleck in "Boiler Room," might be biologically prone to making unduly risky investment decisions, while the quiet introvert might have more solid, research-based instincts.
"Extroverts are often drawn to investing because of the thrill of it," says Laurie Helgoe, a Charleston, W. Va.-based clinical psychologist and author of "Introvert Power", a book about how introversion can be a strength instead of a disadvantage. "They can get caught up in the anxiety of missing out, and if they operate out of that anxiety, they are likely to close down thinking and lose perspective. The investor down the hall with the door closed may be the one to watch."
Behind that closed door you might find someone like Berkshire Hathaway's Warren Buffett - "a classic example of an introvert taking careful, well-calibrated risks," says Susan Cain, author of the bestselling book "Quiet: The Power of Introverts."
Buffett eschews public speaking and works in Omaha far from the frenzy of Wall Street - but produces enviable results. Berkshire Hathaway's compounded annual gain from 1965-2012 was 19.7 percent, thumping the S&P 500 and making for a total gain over that period of 586,817 percent, according to the firm's most recent shareholder letter.
Those returns weren't achieved by taking on crazy gambles, but by adopting a more plodding style of buying shares in big, blue-chip companies and holding them for many years. "Introverts are more cautious than extroverts, but this doesn't mean they avoid all risk. It does mean that they look before they leap, as Buffett is known for doing."
IT'S GENETIC
There may be a biological basis for how introverts and extroverts approach their investments. Gene variations can cause extroverts to seek out a high from the neurotransmitter dopamine, which is traditionally associated with reward-seeking, while prompting introverts to chill out on the neurotransmitter serotonin, which is correlated with a steadier course of well-being and happiness.
If that need for a dopamine fix leads to frequent trading, that would seem like a major handicap for extroverts. After all, most investors are notoriously bad at timing the market: One oft-quoted study by academics Brad Barber and Terrance Odean - finance professors at University of California, Davis and University of California, Berkeley, respectively - found that the returns of frequent traders lagged the general market by a whopping 6.5 percent.
Yet if all it took to be a great investor was a quiet temperament, every introvert would be filthy rich. Shy folks have their own investing handicaps.
Introverts can get so bogged down on detailed research that they miss key opportunities. Their natural inclination towards caution - while protecting them on the downside - can also prevent them from taking the big risks that can lead to big rewards.
"Coming out of the financial crisis, when stocks were cheap, many introverts who were not risk-tolerant did not get invested, and are still not invested. So they missed out," says Michael Pompian, a partner with Mercer Investment Consulting who co-authored a study in the Journal of Wealth Management on how personality type can affect investment choices.
The true ideal might be an 'ambivert,' or someone who can blend the best elements of both, according to Susan Cain. That way investors could maximize the advantages of each personality style, while minimizing the disadvantages.
To help figure out where you fall on the spectrum, you could take a true/false questionnaire Cain developed (bit.ly/fcvOYS). A sampler: "I often let calls go through to voicemail"; "I dislike conflict"; "I prefer not to show or discuss my work with others until it's finished".
With that knowledge in hand, you can then tailor your environment to improve your investment decision-making. Extroverts tend to perform at their best in an arena with lots of stimulation and background noise, like a trading floor, while introverts generally make smarter decisions in a lower-stimulation environment like a quiet office with a closed door.
"Extroverts can learn when it is time to pull back and gather more information," advises Helgoe. "And introverts can learn when it is time to trust their analysis and push forward."
http://www.reuters.com/article/2013/07/2...RH20130729
