Types of Investors
Introduction
My two rules of Investing:
Rule 1 – Never Lose Money.
Rule 2 – Never forget rule 1
Warren Buffett
Introduction
• Who is an Investor?
– Is an individual who invests money with an
expectation of financial return in the future.
– The main objective of the investor is to maximise
returns and minimise the risk.
– Speculator is one who is willing to accept higher
level of risk in anticipating of more return.
Types of Investors
ONLY SAVERS
RISK SEEKING
INVESTORS
REGULAR
INVESTOR
Types of Investors
• Regular Investors – They are very uncommon in the market.
They take decision of investment for long term as compared to
short term equity. They invest money when they have surplus
with them and withdraw when in need.
• Only Savers – Most of the investors in India are of this
category. They never invest in equity, as they think equity is
very risky so refrain from taking risk. They basically invest in
FDs, RDs, PPFs etc.
Types of Investors
• Seasonal Traders – They are experienced investors who have not
earned much from their investments. They are generally close to
employees of trading house or investing professionals. They also
believe and live in the day dream that all the ‘first news’ come to
them. They show they are waiting for the right opportunity to make
a decent return in the market. They are irregular investors and have
high volumes of trade.
• Angel Investors – They are also known as informal investors. They
are wealthy individuals who provide capital for business start ups
and also helps with advice and contacts. They operate alone and
play an indirect role as advisor in the operations of the investee
firms. Angel investors are exact opposites of venture capitalists.
Types of Investors
• Business Investors – They are investors who make investments
either directly or via captive fund. They suffer from ‘I know
everything’ syndrome and do not hesitate to show off their contacts.
• Risk Taking/Seeking Investors – These investors are those types of
investors who never panic and are ready to take risks being much
confident. They work against herd mentality and take decisions on
their own and stick to it. They rarely invest in dubious schemes and
invest in long term investments.
All the above mentioned types of investors belong to the
category of individual investors. Here, the action of one investor
might not benefit the action of the other.
To meet this limitation, the concept of average investor is developed.
Average Investors
• Average Investors refers to the “Universe of all mutual fund
investors whose actions and financial results are restated to represent
a single investor”. This universe would include small and large
investors as well as professionally advised and self advised
investors.
The Philosophy of the Rich and the Poor is this:
The Rich invest their money and spend what is left.
The Poor spend their money and invest what is left.
Rich Dad, Poor
Dad
Characteristics of Successful Investors
• Proactive Learners
• Invest With A Designed Exit Strategy
• Investors Should Be Patient
• Strong Emotional Control
• Defined Investing Strategy
• Investors Should Be Focused
• Flourishing Investors
• Investors Should Be Determined
• Investors Should Prosper On Risk
• Investors Should Be Disciplined
• Investors Should Know How To Use Leverage To Their Advantage
• Investors Should Learn Quickly From Their Mistakes
• Investors Have A Team Of Professional Advisors
• Investors Have A Strong Financial Background
• Successful Investors Are Passionate About The Game Of Investing
Characteristics of Successful Investors
• Proactive Learners – Highly successful investors are proactive
learners. They spend more time studying and analyzing than average
investors. They are also greedy readers. Successful investors know
that more knowledge and information help them to take wiser
decisions, so they always say that their cup of knowledge is never
full and keep their minds open , ever ready to learn. In simple
words, the investors are also willing to pay money to learn some
new knowledge.
• Invest with a designed exit strategy - Successful investors plan
exit strategy first before entering into the market. They know that
they are always two sides of an investment. But average investors
try to forecast the future of their investments; they analyse the
market before entering into it as compared to successful investors
who are opposite to it, Successful investors hope for the best while
preparing for the worst.
Characteristics of Successful Investors
Many average investors enter the markets as predators but when they
get into the middle of the game, they realise they are victims and try to
exit but by then it is too late. In other words, it is felt that the prey’s
with a well defined exit strategy will escape, the rest will be butchered
by the real predators.
• Investors should be Patient - Successful investors are very patient.
When they make their decisions on an investment, they are prepared to
wait to make sure their plan becomes visible. They plan to take
advantage of a short term bullish market but as a back up plan, they
still plan to hold on for as long as they can.
• Strong Emotional Control – The market is controlled by two
emotions, fear and greed and every true investor knows that the market
is driven by these two sentiments. Investments of Average investors
are based on these emotions, but Successful investors have a stronger
control over these emotions. Successful investors don’t discard their
strategy simply because of few failures and they don’t even become
over confident when they are on winning side.
Characteristics of Successful Investors
• Defined Investing Strategy – Every successful investor has over
time developed a well defined investing strategy that works and they
stick to this strategy. While some successful investors implement the
portfolio diversification strategy.
