• Basic Membership Access to Journal, Shadow Stock portfolio & monthly updates for stock screens
  • A+ Investor Full access to AAII.com, Journal, and a power data suite for investment ideas
  • AAII Platinum Full access to all of AAII's model portfolios and premium services at a significant discount
  • Dividend Investing Newsletter and model portfolio that focuses on dividend growth
  • AAII Growth Investing Find secular growth stocks poised for outperformance regardless of macroeconomic conditions.
  • Retirement Investing Discover trusted strategies for every stage of retirement. Get actionable insights and resources for smart retirement planning.
  • Sentiment Investing A research-driven newsletter with 10+ signals decoding sentiment across retail and institutional behavior.
  • Stock Superstars Report Get stock ideas inspired by the market's leading professionals
  • VMQ Stocks For the value investor looking to harness academic research in an actively managed portfolio
  • Bits and Bips Newsletter delivering insights on linking traditional finance, macro trends and cryptocurrency opportunities to help investors build stronger, more diversified portfolios.
All premium products come with free basic membership.
Explore All Membership Options
Join Now
Dispatches

Personality Traits Influence Investing Style Preferences

Researchers found a link between common personality traits and the types of stocks held in individual investors’ portfolios.

The preference for a value, growth, large or small stock is related to an investor’s personality. Researchers found a link between common personality traits and the types of stocks held in individual investors’ portfolios. This, the researchers conclude, strengthens the argument that the outperformance of value and small-company-size premiums is caused by investor behavior as opposed to being compensation for risk.

These findings are based on an analysis of 710 individual investors. Researchers combined data from the Northern Finland Birth Cohort 1966 (NFBC) and the Finnish Central Securities Depository. The NFBC survey includes questions regarding personality traits. The national depository has detailed information on individual investors’ portfolios. The stockholdings data is from 2010 and the personality trait data is from 2012.

Personality characteristics were grouped to form four main traits. Exploratory excitability and extravagance measure a person’s desire to seek new things and spend instead of save. Impulsiveness and disorderliness characterize a willingness to make decisions based on hunches and to do things without regard for routines. High attachment and dependence indicate a tendency to be warm and open with others and a desire to fit into a social group. Sentimentality is associated with being affected by emotional stimuli.

Investors who scored higher on impulsiveness and disorderliness were more likely to hold growth-oriented and small-company stocks. Investors who scored high on sentimentality attachment and dependence traits were more likely to favor value-oriented small-company stocks. The exploratory excitability and extravagance traits were linked to portfolios composed of large-capitalization stocks. Investors with these traits also favored growth over value.

For all of these traits, the higher the score, the greater the magnitude of the relationship. For example, a one standard deviation of increase in impulsiveness and disorderliness was found to be associated with an approximate 7% increased exposure to the small minus big factor. This is indicative of a stronger preference for small-company stocks instead of large-company stocks.

Source: “Personality Traits and Portfolio Tilts Towards Value and Size,” Andrew Conlin and Jouko Miettunen, SSRN, August 15, 2017.

Discussion

Kenneth Dodds from SC posted over 8 years ago:

It is hard to attach much significance to this study of a small group of investors in an apparently narrow age range in Finland. A 7% increase in exposure to small stocks doesn't seem very impressive for a one standard deviation increase in impulsiveness and disorderliness.


Neil Kirst from GA posted over 8 years ago:

I agree with Kenneth about the study. However, I took something different from the article. My takeaway was "who we are as people, AKA traits" influence the way people trade. Maybe I found this because I believe it. I found my trading to be impulsive because I did not have the knowledge or discipline in place to trade methodically. Recognizing my trait helped me identify what to work on.


You need to log in as a registered AAII user before commenting.
Create an account

Log In

Get your free copy of our special report analyzing the tech stocks most likely to outperform the market.
Download the FREE Report Here: