Can a pessimist be a good investor?

If you think that money has nothing to do with personality, you are very wrong. How do you feel when your next paycheck is coming the next Friday, you have a few dollars in your pocket and your bills are to be paid tomorrow. Probably not very good. Key here is to identify emotions involved and to learn how to deal with them.

In order to be a successful investor you should have a plan, and to follow it. If it is absolutely necessary, you can change your plan, but not before that, and certainly you should not act without consulting your plan. Why you should be so rigid? The answer is simple, there are two very powerful emotions involved in investing: greed and fear. Depending on situation, those two emotions could have different intensity. Your reaction in a certain situation, is primarily based on your personality and not your IQ nor education. For example, imagine a fearful person that faces dangerous situation (stock prices are going down) could feel a great fear and to decide to escape. Usually, in the moment where prices are starting to going up again. A greedy person on the other hand, could decide to buy some share only because its price is going up, because his colleague said he earned a lot on that share. You can imagine the result. What is common with this two stories? Not having a plan, or not following the plan.

There are a loot of fun and not so fun test for greed and fear, but how is that related to pessimism, optimism and other -isms? You could figure it out on your own. Pessimists basically thinks that the things are in worse case then they really are, and that basically leads to selling things (shares) cheaper than necessary. Optimists, on the other hand, are willing to pay to much for something. If you are, god forbid, a lazybones then you would probably be guided with greed (money for nothing). You can imagine any personal trait and relate it to the greed and fear and to determine what effect it will have on you. That guesswork doesn't necessarily lead to perfect insight but is certainly a good way to understand yourself.

If this is to much introspection for you, you could try this. Subscribe to some virtual portfolio manager were you have option to play the game of investing in stocks with virtual money (use google and find what you prefer), and start playing. Refrain form any real investment for at least 6 months. You will notice how emotions are driving you from greed to fear and panic. You can use margins (meaning to borrow money form your virtual broker) to intensify your emotions. I think this is a great (and free) way to find out something about your self. You will certainly be surprised. Have fun!