Some time ago; in the early 1930s, a 7-year-old worked in his family’s grocery store. He always purchased six packs of Coca Cola from the store for 25 cents, and would resell them for a nickel – pocketing five cents. At age 11, he took odd jobs; from washing cars to waking up at 4:30 am; selling newspapers. By the time he was 15, he had made $2,000 delivering papers and he invested $1,200 in a profit-sharing; 40-acre farm with a farmer. At 17, he bought a pinball machine which he installed in a barbershop, raking in $4 on its first night.
Fast forward to 2020, the young lad from 1937 is currently worth around $81.2 billion. Among many of his nicknames are “The world’s greatest investor of all time” and “The Wizard of Omaha”. In 2019, the ‘Almighty’ Warren Buffett; CEO of Berkshire Hathaway, was named by Forbes as the 3rd world’s richest person. Today, Berkshire Hathaway is the largest shareowner of Coca Cola and also holds shares in companies like Amazon, Apple, American Airlines, Bank of America, JP Morgan Chase & Co, Goldman Sachs, American Express, and over 50 other companies.
Recall how we established in one of our articles that ‘Behavioural Finance’ is tied with personality types? Sometimes, it is recommended that you evaluate your personality type to ascertain what investment policy would suit you the best. To make this easier for you, we shall adopt a behavioural model developed by Tom Bailard, Larry Biehl, and Ron Kaiser. This model helps up coming investors, as well as seasoned investors, better understand themselves.
What are the different types of investors?
The behavioural model is classified into two broad personality types: The first; is based on the method of action while the second; is on the level of confidence. For the latter, the options include ‘Careful’ or ‘Impetuous’. The level of confidence is however expressed with ‘Anxious’ or ‘Confident’.
It is noteworthy to mention that these are just category classifications under which the investor types are grouped.
The Investor Types are in the subsequent highlights:
1. The Individualist:
The investor here is careful and analytical. They understand their limitations as investors and have a subtle quietness in their abilities. The Individualist is simply in control of their investment journey.
2. The Adventurer:
This characterizes the volatile, entrepreneurial and strong-willed investor. They are confident in their investment abilities and are looking out for the next big shot.
3. The Celebrity:
The Celebrity Investor is an ardent follower of investment fads and trends. They indulge in investing in a number of alternative opportunities. The Celebrity Investor does not have an excellent grasp of investment like The Individualist; it’s rather inadequate.
4. The Guardian:
The investor here is highly risk-averse (much like an Angel Investor); they are keen on preserving wealth. They are sceptical about investing in stock markets because of rumours they may have heard from all and sundry. Ideally, the Guardian is quite prudent with their spending parity and does not fancy taking financial or investment risks as such.
5. Straight Arrow:
The investor in this category evenly replicates the characteristics highlighted above.
Regardless of what investor type you are, always seek the advice of a stockbroker when in doubt. And choosing the right stockbroker is key for your investment journey.
Types of Investors according to corporate body
Asides from individual personalities and preferences, we can also classify the different types of investors according to the organization investing. They include:
1. Personal Investors
Basically, personal investors include family, friends, and networks who are willing to invest in a business. You can talk to an expert if you know people willing to help. However, only a particular amount of people will be able to invest in start-ups. You have to make provisions for them through documentation.
2. Venture Capitalists
These are private equity investors. Venture Capitalists give capital to companies showing high growth potential in return for an equity stake. Usually, they invest good amounts of money which the business can use once they demonstrate the ability to generate significant revenue.
3. Banks
Banks are conventional sources of business loans. However, you will need to provide proof of a revenue stream before the bank can approve your application. This makes banks the most suitable option available for established businesses.
4. Angel Investors
These investors are rich individuals. Usually, Angel Investors have a network that surpasses $1 million. They commonly work with first-time financing entrepreneurs and can be found widely across industry sectors.
5. Peer-to-peer lending
These can either be individuals or groups that provide funds for small businesses. You can apply for peer-to-peer lending by applying with companies that specialize in this lending aspect. Usually, lenders work with these companies to get businesses they wish to finance.
Conclusion:
Now that you have reviewed the investor types there are, to what category do you belong? What kind of risk-taker are you? The onus lies in identifying the personality traits that will facilitate or inhibit you from investing successfully and managing them accordingly.
Do you still remember our story of Warren Buffett? The most successful investors don’t make it in a day. As a seasoned investor or a budding one, learning the ins and outs of the financial world takes time.
This is especially taxing when you combine managing your personality. In the long run, however, this is also a test of patience, trial, and error.
Note: most cautious investors, with the guidance of a stockbroker, invest in preference shares when in doubt.
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