Money management for doubter-timid style online investor

April 13, 2010

They like to think independently of the crowd. Because of this, when they trade online, they are prime candidates to be contrarian investors.

They manage their money as (if not more) conservatively than the obsessive-disciplined type.

But what they have in common with the obsessive type is the compulsion to build a sizable savings account to protect themselves in case of emergency. And when they sometimes focus on the negative, that emergency is seen as just around the corner.

Their cautious nature means they might be overly weighted in risk-free vehicles, such as a money market cash account, bank CD, or a safe bond fund. When everybody else laughs at the idea of owning gold, they consider buying some. Or at least a gold fund.

They are not easily swayed by online bulletin board hype, online newsletters, or tips from friends or colleagues. They would rather pass up an opportunity than jump at something that they haven’t researched carefully. They are slow to commit to an investment. They know there’s always another hot stock if this one gets away.

Likewise, they are not among those who favor getting advice from investment professionals, so a full-service broker is not their cup of tea. Above all, their cautious orientation means they favor the intermediate term (three to six months or more) and the long term in their investment style.

Infrequent Trading

They probably will not make more than one or two trades online every couple of months. And, to be comfortable and consistent with their trading personality, that is probably all they should make. Mutual funds may be a better vehicle for them than individual stocks, at least for the greater percentage of their investment capital.

If they decide they want to become a more active online trader, they will need to alter their bias toward the negative, becoming more assertive and less timid. Doubting and timidity have little place in the world of fast-paced trading.

When it comes to trading execution, timidity and caution turn into fear when it comes time to pull the trading trigger. Their orientation biases them toward seeing all investments as inherently more risky than they actually are. They also have the tendency to be inflexible once they have made a trade.

So, they will tend to hold a position longer than may be wise, as it is tough for them to make the decision to cut their losses. Like the obsessive type, they are horses basically bred to run the intermediate- and long-term course, plodding slowly but surely.