Online Trading Style – Optimist-Gullible

May 27, 2010

Optimist-gullible investors are pleasant people to be around. They basically see things positively and have a good attitude for managing the ups and downs of life, including the stock market and online trading. They view the glass as half full. They tend to be friendly, trusting of others, and light-hearted. This type likes to get along with others, avoids arguments, and sometimes yields his or her own interests for the preferences of others.

The optimist likes to smile a lot, enjoys socializing, and prefers the company of others rather than spending time alone. He or she has made a conscious or unconscious decision to accept the difficulties in life without spending undue time focusing on or worrying about them. Disappointments are taken in stride.

This type likes to work with other people and is a good team player. They like to fill their free time with activities and enjoy keeping busy, not spending too much time in self-reflection. When upset, the optimist is more likely to react with anxiety rather than moodiness or depression. The anxiety often revolves around fear of losing the approval of significant others.

The optimist often appears on the outside to be emotionally balanced. He or she doesn’t like to show outward signs of disappointment with others. When they do allow themselves to feel down, their preferred style of coping is to keep it to themselves.
They express warmth and caring for others easily and cherish friends and family. They basically believe people are good and that life provides numerous simple satisfactions.

They often like to fantasize about the future and all the wonderful things they hope will be a part of it. They are upbeat to be around and others enjoy their company. To put it simply, they have said, “yes” to life.

Optimist-Gullible: Money Management/Trading Style

Optimists are not the most careful or prudent in their money management. They may be overly trustful of others and therefore are among those who get taken by get-rich-quick schemes that promise unrealistic returns.

They naively assume others will not take advantage of their optimistic personality. So they are gullible, which leads to buying products they don’t need and making investments that are not always thought out carefully enough.

Of the different investor types, the optimist has the best attitude to handle the ups and downs of the market. They are able to get through the down periods by staying in touch with a basic positive and hopeful view of the future. While this certainly isn’t a bad bias to have in the living of one’s life, it can make for some rather tough adjustments when things do not turn out as rosy as expected.

Because they are thinking the future will be as good or better than the present, they may not take adequate precautions to protect themselves in times of major market corrections. Nor do they always think about saving for emergencies or financial reversals.

The gullibility of the optimist is based on the false and naive belief that others will be as caring, thoughtful, and honest as they are. This makes them open for manipulation and exploitation by others through online bulletin boards, where optimists may follow stock tips given by people they don’t know but are too quick to trust.

Camaraderie on the Boards

Repeated posting to online boards tends to make investors feel a camaraderie that leads to thinking they know people better than they actually do. In addition, the underlying desire to please others coupled with a tendency toward compliance may lead to blindly following tips and advice without exercising sufficient critical judgment.

The optimist is always in danger of overlooking other people’s less-than-honorable intentions. When more aware of this basic bias, the optimist can learn to stay positive but try and eliminate the gullibility that tends to accompany this trading style.

This type is more common among senior investors as well as very young and naive investors who are susceptible to sales pitches, penny stock scams by telephone, and various other con games that revolve around gaining their trust and playing on the desire for quick and easy riches.

On the positive side, when the optimist becomes a more educated and sophisticated investor, he or she, given an “injection” of the gambler-disciplined trait, has a good attitude for the long haul should he or she try active trading.

They are not easily disappointed by day-to-day losses. They will not be the ones who fly into angry rages, shouting or pounding the desk, when a trade goes against them. They expect the next trade to go their way. They have learned to take short-term or long-term financial loss in stride.

This type of investor will be biased toward stocks always going higher, companies always improving their earnings, and the future always looking rosy. This means they will tend to hold losing positions too long, always thinking the stock will move back up.

Naivete and Real-World Risk

The more naive optimist who has not learned the necessary lessons of real-world risk needs to be careful before committing money to individual stocks. The safest way for them to invest is by buying mutual funds online. They will often overlook all the warning signs that a company may not be good, or a situation may not be what the optimist thinks it is.

It is best for optimists to have a trusted and knowledgeable partner with whom to discuss investments. This may act as an important reality check to counterbalance their own overly optimistic bias.

The positive thing with this type is that it is not that difficult to take a confirmed optimist and temper (or “harden”) him or her with the grim realities of deception and exploitation that are rampant in the investing arena.

When forced to face these realities, they may hold their basic positive nature but also learn to lose the naivete and gullibility that naturally go with it. One of the behaviors that must be altered is the need to gain universal approval. As the need for approval is reduced, this type feels more able to say “no,” think more independently, and be less concerned about the judgments of others.