Should you manage your own investments (Self-profile)

I’ve recently been working with a client who has asked me to teach him how to invest his own money.  This has been very difficult, and I’m beginning to think the best thing I can teach him is that stock picking and trading is not for him. 

Yes, I’m admitting that I can’t teach everyone how to invest for themselves. 

This is one of my underlying themes: Most people are not cut out for investing.  Unfortunately, most mutual fund managers and advisers aren’t either, so just finding someone to manage your money is perhaps harder than doing it yourself.  The good part about finding a skilled money manager is that once you’ve done it, you are done looking.  Managing your own money is an ongoing task… the reward being the fees you avoid. 

That said, what makes a successful do-it-yourself investor?  There are certainly examples.  While the vast majority of new day traders lose money, a few (between 1% and 10%, depending on the study quoted ) consistently make money.   The more sedate world of picking your own investments, is similar, but has lower stakes.  For investors who buy and hold individual stocks (as opposed to day traders, who typically close out their positions at the end of the day), the it is a choice between underperforming and outperforming the market.  Most individual investors underperform, but again, a few outperform.  Considering that an individual investor is saving himself mutual fund and advisory fees, and the fact that most mutual funds underperform their indices, the risks for the do-it-yourself investor are a lot milder.Westcoast Mystery Shopping - Is It Time For a POP QUIZ!

In any case, if you are making the decision “Should I do this myself,” it would be helpful to know beforehand if you have the qualities that put you in the much smaller winners category.  Without further ado, here’s a little quiz I’ve designed to help you make the decision.  This is just based on my reading on the qualities of successful investors, and my observations of people who have done poorly and done very well.

Wannabe investor self-profile (Beta).  Please note: your score on this test is no guarantee of anything.  If you want a guarantee, you have no business dabbling in the financial markets.

Choose the answer that best describes you or your attitudes.

[NOTE: There is a revised version here.]

  1 point 2 points 4 points
When making an important decision I first…

Consult with friends and family.

Do what feels right.

Think about what might go wrong.

My past mistakes…

I don’t make mistakes.

Keep me awake at night.

Have been learning experiences.



Will solve my problems.

Lets me buy things I want.


Is for keeping score.

I live for…

Meaningful relationships.




I want to make money in the market…

So I can quit my job/ because I lost my job.

To achieve future financial goals.

Because the market is fascinating.


I buy things…

To make myself feel good.

Only when I need them.

Only when they’re on super-clearance.


When I have free time I…

Relax or have some fun.

Catch up on projects around the house.

Try to learn something.

Keep in mind that a high score does not make you a better person.   In fact, people who score high on this test are probably not a lot of fun to spend time with.  My investing hero, Warren Buffett’s, idea of a good time is reading financial statements.  If this is your idea of fun, maybe investing is the right thing for you.

A high score is an indicator that you have some of the qualities I think make a successful investor, based on my experience and readings in behavioral finance.  This is something I’ve spent a lot of time thinking and reading about, but it’s a lot more of an art than a science.  I’ve tried to write questions so that people who are prone to common investing mistakes will choose an answer in one of the first two columns. 

The qualities I’m trying to point to with the questions above are (in the same order as the questions: overconfidence, introspection, feeling that money is more powerful than you are, independent decisionmaking, a degree of detachment from the results, a bargain-hunter’s instinct, and an obsessive curiousity about everything.  There are probably other qualities that help with the emotional aspects of investing.  I’ll flesh them out based on readers’ feedback, or as I think of others.


Points Investing strategy
1-12  Work hard, save as much as you can, and find someone else to manage it for you.
13-17  Set up an account at a low cost mutual fund family.  Choose an asset allocation based on your risk tolerance (most mutual fund families and discount brokers have quick online questionnaires to help you with this), save as much money as you can every month, and throw away the monthly statements except when you rebalance the portfolio every 1-2 years.
18-22 As for 13-17 points, but you probably won’t get into too much trouble by looking at the statements.

You might be ready to invest your own money.  Try not to lose too much (you will lose some… taking intelligent risks is what it’s all about.)  Don’t let early success go to your head.  Overconfidence is the most dangerous emotion for an investor.

I appreciate feedback on this.  I’d love to know how people score, and what their experiences have been investing their own money.  I know a lot of people with low scores are going to try to do their own investing, anyway; I want to hear from them, too.

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