Invest
Personality as a predictor of investment success
There’s no real mathematical formula for investment success, but there is one common personal trait that bodes well for profitability when combined with a “healthy” dose of fear, a market strategist has pointed out.
Personality as a predictor of investment success
There’s no real mathematical formula for investment success, but there is one common personal trait that bodes well for profitability when combined with a “healthy” dose of fear, a market strategist has pointed out.
Speaking recently on the nestegg podcast, chief market strategist at CMC Markets Michael McCarthy said that while there’s no one-size-fits-all approach to investing, there is one key predictor for investment success that stands out above all others.
“The right investments depend on our own goals, our own needs, our own time frame, our risk appetites and a whole lot of personal characteristics,” he offered.
At the same time, “there are some personality traits that do seem to predict success”, the strategist said.
Drawing on his background as a professional trader, Mr McCarthy said, “One thing that I’ve noticed, and one thing I look for in people who are seeking to become professional traders – and this extends to investing – is that they’re confident.”
“They’ve got the confidence to stand up and try things, because that’s what it takes to learn in markets.”
This marries in with mistakes being “absolutely crucial to the process of becoming a better investor or trader”.
Mr McCarthy said the reality is none of us can predict the future with any certainty.
“It doesn’t matter how intelligent [or] hardworking we are, we can’t predict the future, but can only keep trying to make the best decisions we can based on the information we have,” he outlined.
Conceding that it means we will always be wrong at times, the strategist said that as a result, “it’s not about not being wrong, it’s about making sure when we are wrong that we keep our losses minimised”.
“When people hang on and hope and end up wiping out a substantial part of their portfolio, that can be very damaging to them, because it undermines their confidence in the markets,” he explained.
And while “a little bit of healthy fear about markets is a good thing”, Mr McCarthy said it does cause problems where it undermines confidence.
In his experience, this is more common than new investors may think, and he sees it often with new traders and customers just starting out on their investment journey.
They start trading on what’s known as a demonstration account – one “specifically created for people to practice and learn how to place orders, how to close trades and all of the other aspects of investing”.
“But this practice account has play money in it,” Mr McCarthy continued.
He observed that he often sees people do very well when they’re doing their practice account. However, “when they convert to real money, everything changes”.
“That’s because once we put real money on the line, our emotions start to come into play,” he stated.
“I’m not saying we should ignore emotions, they’re important parts of us and we all have them, of course, but if we make decisions in our investments based purely on emotion, we’re putting ourselves in danger.”
Emotion becomes of particular concern when investors aren’t able to make a transaction because they’re too worried about what might happen.
When this is the case, Mr McCarthy flagged it as the time to start working on the characteristics that underpin the confidence to invest correctly.
This is where qualities like resilience and determination do then come in, with the professional investor considering these traits as “key predictors of success in the markets”.
Like many other skills in life, Mr McCarthy said “investing well is learnt by experience”.
“It’s not something that can be learned from a book.”
“The reason for that is it doesn’t just take our brain power to invest well, we also have to control and understand what our emotions are telling us,” he explained.
About the author
About the author
Investment insights
How Aussies can invest like Warren Buffett
Arguably the most successful investor of the modern age, Warren Buffett is still the chairman and CEO of Berkshire Hathaway at 90 years old, and currently has a net worth of over $100 billion, writes ...Read more
Investment insights
Pahari leaves AMP as it pursues demerger
In yet another twist, AMP has announced its intentions to pursue a demerger of its private markets business, a move that has seen it kill off its takeover negotiations with Ares Management and Boe Pah...Read more
Investment insights
Business warned on COVID vaccine policy backlash
Businesses that pressure staff into getting a COVID-19 vaccine are being warned they could face discrimination, harassment, bullying and employment abuse claims, according to an industry expert. ...Read more
Investment insights
5-step guide to teaching kids about money
It’s never too early to start teaching kids about money and how to manage it. With the added challenges associated with COVID, it’s never been more important either! ...Read more
Investment insights
Why ethical investing is at a tipping point
Best-selling author Malcolm Gladwell said it best: “Look at the world around you. It may seem like an immovable, implacable place. It is not. With the slightest push – in just the right place – ...Read more
Investment insights
Ares withdraws from AMP bid as wealth manager’s financial results spell trouble
The bad news keeps rolling in for AMP, with the wealth manager reporting a significant drop in profit as its US bidder, Ares Management Corp, announces that it is backing out. ...Read more
Investment insights
‘RBA not responsible for asset prices’, governor says
RBA governor Philip Lowe has said that the Reserve Bank is not responsible for targeting asset prices, after questions were raised about the creation of raging bull markets against the backdrop of l...Read more
Investment insights
Retailers report strong HY21, with Super Retail set to refund JobKeeper
Certain Australian retailers are flourishing despite the government-mandated temporary store closures in 2020, with JB Hi-Fi reporting good sales growth and Super Retail Group pledging to hand back $1...Read more
How the post-lockdown period will influence property, what the soaring NFT market means, and defining financial wellness
Listen now
APRA’s mortgage crackdown, the power of DeFi and last-minute tax tips
Listen now
What to expect as the end of lockdown looms? Will the Stage 2 tax cuts boost your tax return? Where should investors be looking as the economy reopens?
Listen now
Could property prices inflate by another 20%? What’s happening in recent dividend announcements? Did your fund fail the YFYS test?
Listen now
Investment insights
How Aussies can invest like Warren Buffett
Arguably the most successful investor of the modern age, Warren Buffett is still the chairman and CEO of Berkshire Hathaway at 90 years old, and currently has a net worth of over $100 billion, writes ...Read more
Investment insights
Pahari leaves AMP as it pursues demerger
In yet another twist, AMP has announced its intentions to pursue a demerger of its private markets business, a move that has seen it kill off its takeover negotiations with Ares Management and Boe Pah...Read more
Investment insights
Business warned on COVID vaccine policy backlash
Businesses that pressure staff into getting a COVID-19 vaccine are being warned they could face discrimination, harassment, bullying and employment abuse claims, according to an industry expert. ...Read more
Investment insights
5-step guide to teaching kids about money
It’s never too early to start teaching kids about money and how to manage it. With the added challenges associated with COVID, it’s never been more important either! ...Read more
Investment insights
Why ethical investing is at a tipping point
Best-selling author Malcolm Gladwell said it best: “Look at the world around you. It may seem like an immovable, implacable place. It is not. With the slightest push – in just the right place – ...Read more
Investment insights
Ares withdraws from AMP bid as wealth manager’s financial results spell trouble
The bad news keeps rolling in for AMP, with the wealth manager reporting a significant drop in profit as its US bidder, Ares Management Corp, announces that it is backing out. ...Read more
Investment insights
‘RBA not responsible for asset prices’, governor says
RBA governor Philip Lowe has said that the Reserve Bank is not responsible for targeting asset prices, after questions were raised about the creation of raging bull markets against the backdrop of l...Read more
Investment insights
Retailers report strong HY21, with Super Retail set to refund JobKeeper
Certain Australian retailers are flourishing despite the government-mandated temporary store closures in 2020, with JB Hi-Fi reporting good sales growth and Super Retail Group pledging to hand back $1...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
