"The optimist proclaims that we live in the best of all possible worlds; and the pessimist fears this is true."
-- James B. Cabell
In this continuing series on different trading types, so far we've looked at the
doubter-timid and the
gambler-impulsive types. This week, we look at the optimist-gullible trader.
Optimist-gullible traders and investors are pleasant people to be around. They basically see things positively and have a good attitude for managing both the ups and downs of life and of the stock market. They are friendly, trusting of others (to a fault) and lighthearted in demeanor. This type likes to get along with others, avoids arguments and tends to yield his or her own interests to the preferences of others.
The optimist smiles easily, enjoys socializing and prefers others' company rather than spending time alone. He or she has made a conscious decision to accept the difficulties of life without spending too much time focusing on or worrying about them. Disappointments are taken in stride.
Optimists work well with other people. Corporations love them because they are good "team" players. They prefer to keep busy and are not overly interested in long periods of solitude or self-reflection. When upset, the optimist is more likely to react with anxiety rather than moodiness or depression. The anxiety often revolves around perceived critical judgments and the fear of losing the approval of significant others.
This type easily expresses warmth and caring for others and cherishes friends and family. They basically believe most people are good and are content with the numerous small satisfactions that everyday life provides. To put it simply, they have said "yes" to life.
Compared with the more compulsive types, optimists are not the most prudent in their money management. They may be overly trustful of others and therefore are among those most likely to get taken by get-rich-quick schemes that promise unrealistic returns.
The problem is that 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. But because they measure high on hope, wish and possibility, it is easy for them to tackle new projects and manage tough situations with a positive attitude.
Of the different investor types, the optimist has the best attitude to handle the ups and downs of the market. They 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 daily living of one's life, it can make for some rather tough adjustments and crushing disappointments when things do not turn out as rosy as expected.
The Sun Comes Out Tomorrow? Bet Your Bottom Dollar
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. There were many of this type, for example, who just didn't believe that the market could possibly ever crash after the good times of the late '90s. Their basic optimism made it impossible for them to assess the major correction in process, rather than to think that every dip would be a buying opportunity and that the market just
to bounce back up.
The gullibility of the optimist is based on the naive belief that others will be as caring, thoughtful and honest as
are. This makes them vulnerable to manipulation and exploitation by others. For example, they are easy prey for online bulletin board hype, overly positive advertising by brokerages, analyst recommendations, friendly stock tips and various other kinds of media and social influence.
More broadly, many optimists were among those most severely shaken by the terrorist strikes, as they never imagined an enemy could ever harbor such hate to take such daring and destructive action.
Put simply, the optimist-gullible investor is always in danger of overlooking other people's less-than-honorable intentions. The underlying dynamic here is a desire to please others coupled with a tendency toward compliance, which may lead to blindly following the advice of experts without exercising sufficient critical judgment.
They will be biased toward stocks always going higher, companies always being ethical and the future of business and the market always looking rosy. But when made aware of this basic bias, they can learn to stay positive, while at the same time trying to eliminate the gullibility that tends to accompany this trading style.
Until they do, it is best for optimists to have a trusted and knowledgeable partner with whom to discuss investments. This may act as a necessary reality check to counterbalance their own overly positive bias.
In addition, optimists need to confront their need for universal approval. As the need for approval is reduced, this type feels more comfortable saying "no," thinks more independently, and is less concerned with and swayed by the judgments and opinions of others.
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Steven J. Hendlin, Ph.D. is a clinical psychologist in Irvine, Calif. He has been in private practice for the last 26 years, investing for the last 20 years, and actively trading online as a position trader and long-term investor since 1996. He is the author of
The Disciplined Online Investor and maintains a site at www.hendlin.net. He is pleased to receive your comments and questions for publication in his public forum columns at
firstname.lastname@example.org , but please remember that he is unable to provide personal counseling or psychotherapy through the mail.
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