Market Jenga – Three Personality X-Factors

A difficult market environment can be emotionally challenging for anyone. However, MarketPsych Insights (MPI) has identified three personality x-factors that bear special consideration. They are Emotional Sensitivity, Spontaneity and Extraversion. (NOTE: Our proprietary system allows advisors to 1) Identify these personality factors, 2) Sort and prioritize their book based on these factors and 3) Prescribe practical actions to address them).

Emotional Sensitivity: Investors who score high on Emotional Sensitivity (E-sen) experience more frequent and more intense negative emotions – (e.g, fear, frustration, despair.) These investors are more likely to view neutral stimuli pessimistically, to take a “half-empty” perspective. E-sen investors score highly on an MPI subfactor of Financial Anxiety (as one would imagine). However, this manifests itself in two different ways depending on how the investors is positioned.

E-sens who are in the Market are the most nervous Jenga players out there. In fact, E-sens may have already sold a large percentage of their equities positions by now because the view game as untenable and stressful. Volatility will shake them up. Every fresh new high is evidence this madness has gone too far. Every dip down is evidence the tower is about to collapse. Whether they are verbalizing their concerns or keeping them inside, these are the clients who are most emotional right now. They will benefit greatly from an advisor reaching out to them.

E-sen investors who are primarily positioned out of the market feel something negative, but quite different. They experience intense regret and frustration for missing out. This of course creates a strong desire to make up for their missed opportunity, but is also accompanied by the unshakable notion that the moment they decide to join the game, the tower will collapse. Like their “in the market” kin, these investors will also benefit from a competent advisor to help them discharge their negative feelings.

Spontaneity: Investors who score high on Spontaneity can change direction quickly and are more likely to be influenced by short-term events (e.g., market moves, North Korea, the latest from Trump) – and therefore short-term emotions. They score low in an MPI investing subfactor, Plan Orientation. Spontaneous personality types are more likely to tune in and out of their investing experience. When they are tuned out, they are deceptively easy clients with whom to work – everything seems fine. When they tune back in, however, they can demand extreme changes that appear to come out of the blue. You can see how a client who scores high in both E-sen and Spontaneity (e.g., negative emotions + impulsiveness) tend to register on another subfactor, Panic Propensity. Panic Propensity (as the name implies) is the likelihood to experience and act upon moments of intense, irrational fear. Advisors are critical allies to Spontaneous personality types to keep them appropriately informed and on plan as market environments change.

Extraversion: Investors who score high on this factor are a different story. This personality trait is associated with a heightened tendency to invest at market tops. Remember that guy who came to your cocktail party? You didn’t even know him that well, but he ended up being the last one there… And he wanted to do shots with you at 2:00 in the morning? That’s an extravert. He (or she) doesn’t know when the party is over. This trait plays itself out in investing as well. Investors high on the Extraversion factor tend to be associated with the MPI investing subfactor Excitement Seeking. Though Extraversion is associated more with overbuying during frenzies, the inherent optimism and excitement-driven behaviors often leads to overstaying their market welcome and ignoring prudent portfolio adjustments.

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In the next post we will examine three practical steps to take with these personality types. In doing so we will turn to Westeros and take our advice from the most cunning character on Game of Thrones.

(Coming Soon) Part 3: Market Jenga – Practical Advice, Special Game of Thrones Edition

Frank Murtha, Ph.D.
Dr. Frankenstocks

“And hey, let’s be careful out there.”