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Question #1119891301Monday, 27-Jun-2005
Category: Stock Market
Stock market price changes are usually based on future prospects rather than the current or past economic situation. Sensing types tend to live in the here and now and like facts from the past. On the contrary, inutitive types like imagination and worry more about the future than the present. We know that in the long run, only a small number of people can make money successfully in stock markets while the majority usually lose money. I wonder if the relatively rare population of NT and NF types have an edge over SJ and SP types when trading stocks, thus explaining this phenomenon? -- Vincent
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Your Answers: 1+
A1 No, stock market is not a zero sum game. In the long run stock prices go up, not down. In the past the yield on stocks has on average been higher than for most other forms of investment. The rational assumption in economics is that the markets already discount all available information, and thus, unless you have (illegal) insider information, the best strategy is to minimize your company risk by diversifying your portfolio as much as possible and to minimize your trading costs by holding the same stocks. It is foolish to think that your analytical skills would enable you to beat the index, most professionally managed funds fail to consistently meet this criteria. Thus the most sensible option for individual investors probably is to buy shares in the most diversified index fund with the smallest fees, and further reduce your market risk by investing part of your funds in other markets, partly depending on local tax laws. This has been corroborated by numerous studies. P.S. Based on my impartial observations, ISTPs make excellent investors whereas INTJs are mediocre at best. -- Genius
A2 Depends on how you count the score, my dear Genius. Investment performance is always bechmarked against a market index. The market index represents the overall sum of all assets in the market. Hence, if someone is beating the index, you can be dam well sure someone else isn't! Yes, regardless of markets being perfect or not, in comparison to the market index, financial investment is always a zero-sum game. Having said that, the question is rather interesting. There are also numerous studies demonstrating that even if someone is winning while someone is loosing on the investment game (i.e. making more or less than the index, respectively), no one can be shown to be winning consistently. Yes, some people have become rich from their investments (e.g. George Soros), but across the population, their success cannot be statistically distinguished from sheer luck. This seems to answer the question negatively, since there are no consistent winners or loosers, let alone these groups being correlated with personality type. There are however no studies examining investment performance consistency in different market climates (trending, sideways, down- or upturns). I'd expect types with E, S and F characteristics to pick up on trends early on, and types with I, N and T characteristics to be contrarian and make money on down- or upturns. -- Andre - INTj
A3 Stocks are always zero-sum PLUS dividends (which in times of growth are almost nill, but in saturation...umm...actually a GOOD company should have NO conception of this word!) I think the MAIN thing in investing is NOT to come up with an "ingenious" strategy to gain money, but to AVOID the strategies that will NEVER work consistently. Therefore, experience, persistance, experience, patience, and experience are needed for good investing. The driving force to aquire such experience could be money or just an esurient appetite for excercizing knowlege. Anyway, if I had to pick people based ONLY on type to invest my money, I would say INTp, but type would probably give only a miniscule advantage, probably even less than the knowledge of what college they attended. -- Some Random xNTx
A4 I'd pick tireless and playful ESTp's for day-traders, and INTj's for long-term investment. -- Andre - INTj
A5 I agree with INTJs being long-term investors. I have always had a problem handling money as well. Seems like it's all theoretical and I don't pay attention to it until it runs out. Any other INTJs have this issue? -- Tony - INTj
A6 Although it's easy to think you only make money by buying low and selling high. It's the investor's behaviour that drives thier successfulness of doing just that. To make money on your own, you need to emulate a successful behavior. For some that means listening to the screaming guy on TV, but for me I prefer the analytical, patient teachers who trade against the wild emotions of 80% of the market like (Gary Kaltbaum) -- Dave - INTP
A7 Stock markets may not be counted as "zero-sum" game as there are dividends for shareholders. But forex and future trading should be "zero-sum" games as one side is buying/longing while another side is selling/shorting. In speculative zero-sum games, obviously NT types are more likely to win as they are more analytical and less emotional than other types such as SF types. Of course, to win money, experiences and preparation and EQ are much more important. But psychological types do have a great influence on people's willingness to spend time learning how to play and win in the zero-sum games. I believe that some types such as ESFJs or ESFPS usually won't have interests to do so as they like to listen to people's advice more than to understand and solve the problem themselves. Overall, some types should have a higher winning chance in an zero-sum game. -- Anonymous
A8 Zero-sum game does not equal to a game composed only by returns equal to zero. Indeed, the sum has to be zero, as the name suggests. Therefore, it is pretty obvious that certain people will get the returns, and certain other lossess. Nothing has been prove on wether the returns and losses take form of a random walk for every subject playing the game. Indeed thinking about every possible zero-sum game around, winners and losers do exist, simply because the people that are better are going to take the stakes much faster than the people that are worse and, therefore, gain from a zero-sum game. I wouldn't say that NT types have a particular edge over the others. Each type would possibly use a method which suits its interaction style. -- FDG-ESTp
A9 As an ISTp myself, I don't think our temperament suits us to long-term investing at all! As for day-trading, I'd think we'd be more likely to try it out, be competent *enough* at it but lose interest within a month or two & go on to something else. It's plenty of detail for our S & T, sure, but once we "get" it, we get bored with it - and if we don't "get" it, I'd think we'd get bored with it, too! For me, I'm trying to get to a place where I can buy some land & build something by myself ... maybe to flip it & do it again in a new way. If I were to invest, that would be more "my" style - other ISTps could chime in with their attitudes, too! -- iAnnAu
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