Tailoring Investment Portfolios to Personalities and Traits

Investors must align their investment style with their personality traits for successful portfolio management.

### Tailoring Your Investment Portfolio to Fit Your Personality
* 🧠 Your investment portfolio should align with your personality traits to ensure you **remain committed to it** and achieve your **financial goals**.
* 📊 Risk questionnaires are commonly used by financial advisors and robo funds to **assess your risk appetite** and match you with a **suitable investment portfolio**.
* 🔍 Academic research suggests that personality traits influence investment styles; for instance, **extroverts may prefer short-term investments** while **open-minded individuals might lean towards long-term strategies**.
* 💼 Various investment styles exist, including **quality stocks with strong fundamentals**, value stocks that are **undervalued**, growth stocks showing **aggressive profit increases**, and momentum stocks that are **trending upwards**.
* 💰 Factors such as small caps, high dividend stocks, and low volatility stocks also play significant roles in investment performance, with **small caps historically outperforming large caps**.
* ⚖ To invest according to your preferred style, you can use **factor funds** or create a personalized portfolio using platforms like Stockopedia, which allows for **detailed screening based on specific metrics**.
* 🚀 Character traits such as **impatience**, **bravery**, and **obstinacy** can influence your investment choices, with styles like **growth and momentum** being suited for impatient investors, while **value investing** may require more bravery and **long-term commitment**.
* 📈 Ultimately, aligning your investment strategy with your personality traits **increases the likelihood of sticking to it and achieving success** in the stock market.

your Investment Portfolio should be tailored to fit your personality. If it isn't, you won't stick with it. In this video, we'll look at which investment styles are suited to your character traits. By finding factors that are tailored to your personality, you're more likely to stick with that portfolio and also meet your financial goals. This video is sponsored by Stockopedia, which provides easy-to-use research tools that save you time, help you act decisively, and improve your success rate in the stock market. Now, you may have had to take a risk questionnaire at some time to match you with a particular portfolio. Financial advisors do this, for example, but also if you invest in a robo fund, you'll take a set of questions while you're onboarded, which will effectively work out what your risk appetite is and then match you to a portfolio. For example, here's one that you can take online for free from Standard Life, and you go through 13 questions, and it comes up with some classification of your risk appetite. And in case you're interested

my answers led to a classification of medium, but what we'll try to do today is to try to be a bit more granular when it comes to doing that matching, and we'll think about individual character traits and also try to match those with some different styles of investing. Now, there is academic research which is trying to do this. So, for example, if you're an extrovert, it's quite likely that you'll favor short-term investments. If you're open to new experiences, well, in that case, you seem to be more likely to go for long-term investments. And if you're of a nervous disposition, then you're unlikely to buy short-term investments. So, let's try to do something similar, but we'll apply it to factors or styles of investing. So, this is just another way to slice and dice the equity market. Instead of looking at countries and different sectors, for example, we look at different types of stock. My favorite style or factor is called quality. Essentially, these are companies with strong fundamentals. You look at the balance sheet, you look for too much debt, you

avoid those companies, and you look for companies that are growing their profits steadily, but also which are generating a lot of profit for the capital they've employed. For example, all those would classify as quality stocks. Values, another very popular style of investing, you look for cheap stocks. You have some way of working out the company's intrinsic value, its fair value, and if it's trading below that, then you buy the stock. Growth stocks are companies that are growing their profits aggressively. These have been very successful over the last decade, for example, in America. Momentum stocks are stocks that are moving up in price, so that's positive momentum. That tends to perform well because stocks carry on trending upwards for some period of time. One of the first factors that was discovered was that small caps tend to outperform large caps, perhaps because these are companies that have greater scope for future growth. Yield is popular with retirees because they want a steady income. So, another factor might be high dividend stocks, stocks that pay out steadily and which pay out a large proportion of their profits, and then

Finally, one of the surprising factors that performs well historically is low volatility. So, these are SA stocks which aren't necessarily very exciting, but which historically have outperformed the broader market. Now, there are two ways you can get exposure to these different styles of investing. One of them is to use funds. Now, there are factor funds which allow you to get exposure to a particular style. You could get growth funds, for example, or high-income funds, or you could go for a value fund. Sometimes you can get funds which combine multiple factors, like small-cap growth, for example. Now, in the UK, we've got just ETF which allows us to find those funds, and you can simply filter on just ETF for a particular style of investing. Here, for example, you can see you've got dividend style, equal-weighted, which is a small-cap tilt, fundamental quality, growth, large caps, low volatility, and so on. However, sometimes you may not be able to find the particular fund with the combination of factors that you want, in which case you have to roll your own. For example, in the UK, there wasn't a

small cap value growth quality fund. So, I had to roll my own out of individual stocks. Now, I use Stockopedia for that, which is the sponsor of today's video. And you can see that it has a high quality, value, and momentum rank for the stocks which I built into my portfolio. This is the screen which I created. You can see that the quality rank has to be greater than 50, so does the value rank, and the momentum rank. And I also filter based on the market capitalization of the stocks, and the spread had to be less than 500 basis points because I didn't want illiquid stocks. And these are the companies that it came up with with the filter. So, that's the mechanics of how you might approach it once you've chosen a factor or a style. But how do we choose that style in the first place? Well, in fact, I think it's all about you. So, what I'm going to do now is to go through some of the character traits and try and map them onto those investment styles. And the first one is impatience. If

you're the kind of person who just can't wait for a file to download. If an advertisement comes on TV, you switch the channel. And if you buy a stock or a fund and it doesn't go up immediately, then yes, you're impatient. Now, I'd say there are three styles of investment that are particularly suited to you if you're impatient. The first one is growth because that's been doing very well recently. So, it's very easy to buy into a style which is large-cap growth stocks in the United States. Lots of people like tech stocks because they're very visible. So, from lots of perspectives, people find it easy to invest in these stocks, and they're currently rising. And that overlaps with another style currently, which is momentum. If we look at the overlap of momentum stocks and growth stocks, you'd see that at the moment, growth and momentum are probably very similar. And that's because growth has been doing so well. Remember what happens with momentum is that it's simply buy stocks which are rising. And what's rising at the moment is growth stocks.

but the broader point here is that momentum is good for impatient people because you don't have to wait around for it to work, except for cases where we've gone from one style of investment outperforming, like growth at the moment, and then if we were to switch to value outperforming, well, momentum would take a while to pick up that new set of stocks and also to pick up that new trend. So, whenever we're going through one of these transition periods for momentum, then it'll underperform, or also if markets are simply trending sideways without very clear momentum in any direction. Another style which I think might be suitable if you're impatient is dividend stocks, and that's because you'll see these dividends appearing in your account, and I think that quells a certain fear about results. You can see the tangible payments in your broker account, and that might stop you from getting impatient with capital growth for those stocks. Another attribute which I think is important is whether you're brave, and one style of investing which takes a huge amount of bravery at the

moment is value, and here I'm just talking about value on its own. Pure value is a play. The reason for that is that if we look at value outperforming growth over the last 100 years, say it really hasn't recovered from 2007. That was the point, the real turning point when growth started to take over, particularly in the US, and really that train hasn't stopped. Remember that value and growth are kind of opposites, and if one's doing well, the other one isn't. So, if you are a deep value investor and you're brave enough to stick with it, then I think maybe you're going to be proven right eventually. Another character trait might be ruthlessness. Are you wedded to a particular stock, or are you quite happy to sell it at the drop of a hat? If you do adopt a style like momentum, for example, where you simply buy stocks that are going up, and as soon as that stops, you have to sell them, then there's a lot of churn in your portfolio, and any kind of

attachment to a stock is going to stop that happening to a certain extent. That's also true of styles like value because eventually a stock won't fit in your screen. It won't be cheap anymore and that means that you have to sell it. So if you are going to be adopting the single stock approach I think you have to be ruthless. Otherwise you're going to get attached to certain companies and maybe not sell them in time. One way to avoid that is simply to buy a fund which implements the strategy and that way you won't get attached to single stocks. Although you might still have difficulties sticking with the strategy but that's another matter. Another important character trait is whether you're obstinate. Are you someone who really sticks to your beliefs even maybe when there's evidence to the contrary or perhaps when it seems the whole world's turned against you. We saw that value took a long time to turn around and that's because it's a mean reversion strategy. Price to earnings multiples valuation measures sometimes are well above their long-term average.

Sometimes well below and what you're waiting for with a value strategy is for stocks which are currently cheap to revert to their mean to get more expensive. So, I think if you do adopt this mean reversion style of investing, then being obstinate probably helps. Maybe one way to make that easier is to combine multiple factors, for example, quality. These are good stocks with good balance sheets, good fundamentals with value. So, these are stocks which are also currently cheap, and there's a nice quote from Warren Buffett which is, I like buying quality merchandise when it's been marked down. So, these are stocks which have maybe been unfairly punished, maybe overly punished for some kind of accident, and you're betting on the turnaround, but you will need to be obstinate in your beliefs. Still, one thing to avoid, of course, is value traps when stocks are cheap and they stay cheap because there's a structural long-term problem with that stock or company. Being opportunistic also suits certain types of investors. Now, the opportunities could happen for a variety

of reasons. It could be some kind of shock like COVID, which makes stocks temporarily cheap, or it could be a crisis in a particular sector. So, you probably remember when oil prices went below zero for a short period of time in 2020 because of the COVID pandemic. And if we look at a US ETF with ticker XLE, this buys us energy stocks. Notice how in 2020 that fell by 57%, and that was an incredible opportunity because people still need oil. So, if you'd have bought that after the sell-off and held on to it, it's currently up by around 300%. If you buy for income, again being opportunistic might help. One way to think about dividend-paying stocks is it's a little bit like getting onto a train. Once you're on the train, you get these regular payments made to you. But the ticket to get onto the train, the price of the fund or the stock, varies over time. So, why not buy the ticket when it's cheap? So, wait for a market dislocation, wait for the stock to sell off, assuming

that the crisis that made that happen doesn't reduce the dividend, of course, and then you can get on board and pay less for the income you're going to receive. One style of investing which Jim O'Shaughnessy, the author of What Works on Wall Street, found was particularly effective is to combine value and momentum. Value, remember, is the mean reversion. It can take a long time, but by combining that with momentum, you can find that subset of stocks which are finally turning the corner. You don't have to wait as long, in other words. So, if you are going to be opportunistic and use something like value momentum, even then, you might need to be patient some of the time. Now, I did an opportunistic trade recently in my fund portfolio, which is to do with copper. I noticed the price of copper was languishing because of all the bad economic news out of China, which is a big consumer of copper. So, I thought something was likely to happen to push the price back up. Now, I didn't know that they were going to

announce a stimulus, but as it turned out, they did. But what I wanted was to buy a portfolio of copper stocks. Now, I could have gone for copper exposure directly via any ETF, but in fact, I didn't want to do that because I wanted miners which paid me a dividend. So, what I used for that was also Stockopedia because what it allows you to do is to look at the stock ranks of any set of stocks. Now, notice the stock ranks in this case are not particularly high for these copper miners. The only one which has a reasonable exposure to copper but also a pretty good stock rank is currently BHP. So, what I thought I'd do was to weight according to the stock rank. So, if a company has twice the stock rank of another, it'll get twice the weighting in my portfolio. So, that's what I've done. I've created a copper portfolio where the stock rank is proportional to my holding, and as those stock ranks change over time, so will my weighting in my portfolio. Now, if you want to make your

own screen inside Stockopedia. It's very easy. I just click on new screen, and I can screen based on almost any fundamental metric you can think of for a particular company. You can use their off-the-shelf composite rankings for things like quality and value, value and momentum, and there's a brilliant explanation of each of those combinations of styles. So, my UK small cap value momentum quality portfolio has a quality rank greater than 50, same for Value Rank and momentum rank. There's a range of market cap I'm interested in, greater than 100 million, less than a billion, and they've also chosen to use stocks which are liquid, where the bid-offer spread is less than 500 basis points or 5%. And then, if a stock falls out of my portfolio because it no longer has a high enough stock rank, I come back to this list, and I simply choose another stock from the same sector which has the highest stock rank. There are lots of other great features, plus it's not just for UK stocks; there are other regions.

this is UK Focus that we just saw, but there's also Australasia, Europe, United States, and Canada. For example, there's a social feature, so you can discuss particular stocks, and there's also great learning pages, so you can learn about these different screens. And this shows how to use fundamentals to decide which stocks to buy. Now viewers and pension craft get a special offer from Stockopedia. If you're interested in trying this out for yourself, you get 25% off your annual subscription. And if you click on the link below, you can see Ed Croft describing how to use the platform in his own words. So if you do want to try it out for yourself, just use the link in the description below or use the promo code PC25 at checkout, and that comes with a 14-day free trial. The final character trait we'll look at is whether you're adventurous, and one particular combination of styles is quality and momentum. So these are fundamentally good stocks which are trending upwards. Now quality's been on my radar for some time in my fund.

portfolio because it's a factor which I really like. It just intuitively appeals to me that you buy good companies. However, one of the problems with quality at the moment, if we look at a world quality index, for example, like this one from MSCI, if you look at the top 10 stocks in it, it's even more concentrated than the S&P 500 in these tech stocks because they score very highly on a quality measure. So, it's often the case that if you go for quality, you often end up paying for stocks which are very expensive, and that means you've got to be pretty nimble when the story changes. All it takes is one profit warning for these lost devaluations to reverse very quickly. We saw one example of that recently where one of the darling stocks of the AI narrative, which is ASML, a company that makes lithography equipment. Their results were leaked today early, and inside the report that was leaked, you could see that there was weakness in the semiconductor market. Now, markets didn't like that at all, and the stock fell over

the course of a day, about 16%, and over the course of about 2 days, by about 22%. So, if you are going to go for this quality style of investment, just be aware of the fact that things can turn around very quickly once the story changes. So, you've got to be quick on your toes. Another way to invest is to use Guru Styles. One of the popular things on Stockopedia, for example, is to follow the screens which capture the essence of the investment philosophy of various famous investors. For example, if you're a fan of Terry Smith, his style of investing could be described as compounding quality. He buys good companies and then he lets them compound over time. So, some of the criteria he uses, like return on capital employed, would be included in that screen. Or perhaps you like Jim O'Shaughnessy's idea of trending value, value stocks where you don't have to wait so long. Or perhaps Warren Buffett's mentor, Benjamin Graham. You could look at his deep value screen. So, whatever style of investing you go

for just make sure that you have the right attributes that match that style because you're most likely to be successful if you stick with it. If you switch from one style to another, it's very unlikely that you'd be able to switch on time and subsequently you're very likely to underperform. Now don't forget our offer from Stockopedia. If VI of Pension Craft, get a special offer where you get 25% off your annual subscription. Just use the link below or alternatively just use the promo code, which is PC25 at the checkout. And as always, thank you for listening.

Factor Investing: Investing Styles to Suit Your Personality

My name is Ramin Nakisa and I started PensionCraft in 2016 as I felt strongly that I wanted to teach people how to invest well for themselves so they could stop making costly mistakes and losing their money through having to pay unnecessarily high fees.

Before starting PensionCraft, I worked in investment banking as a strategist and I was a frequent contributor on CNBC and Bloomberg TV. I have written two books about finance and investment: one for professional investors and one that explains how to buy and sell volatility using exchange-traded products.

I publish a new video on YouTube every Saturday and you can join me for a live Q&A on the 1st Thursday of every month at 7pm UK time.

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Tailoring Your Investment Portfolio to Your Personality

An investment portfolio should align with your personality to ensure commitment and success.

Risk questionnaires and assessments are common methods used to match individuals with suitable portfolios.

Different investment styles, such as quality, value, growth, momentum, small caps, and high dividend stocks, cater to various character traits and financial goals.

Low volatility stocks have historically outperformed the broader market, offering a stable investment option.

Factor funds provide exposure to different investment styles, such as growth, high-income, and value funds.

In the UK, ETFs can be used to filter and find funds based on specific investment styles, while individual stocks can be combined to create a custom portfolio when desired funds are unavailable.

Momentum investing is beneficial for impatient individuals, but it may underperform during transition periods or sideways markets.

Dividend stocks provide tangible payments, helping to quell impatience with capital growth.

Value investing requires bravery and ruthlessness, as it involves sticking with underperforming stocks and being willing to sell when they no longer fit the strategy.

Mean Reversion and Opportunistic Investing

Mean reversion investing focuses on buying cheap stocks with the expectation that they will become more expensive over time.

Combining value with quality factors can be effective, as it targets stocks that are both cheap and have good fundamentals.

Being opportunistic during market dislocations or crises can provide great investment opportunities, such as buying energy stocks during the COVID-19 pandemic.

The speaker aimed to invest in copper miners for dividend exposure, using Stockopedia to rank the stocks.

BHP stood out with a good stock rank and copper exposure, leading to a weighted portfolio based on stock ranks.

Stockopedia offers various screening options, regional coverage, and a special offer for a 25% discount on an annual subscription.

Investing in Quality Stocks: Key Insights

Investing in quality stocks can be appealing, but they often come with high valuations and concentrated positions, particularly in tech.

A recent example is ASML, whose stock plummeted 22% in two days due to a leaked report showing weakness in the semiconductor market.

Following the investment styles of famous investors, like Terry Smith or Warren Buffett, can provide a structured approach, but it's crucial to stick with one style to maximize success.