The Mindset Of Two Investors

TruePoint Capital

In the business world, there are two types of leaders – instinctual and intuitive.

Business leaders are faced with constant decisions that could have short-term and long-term repercussions depending on how the consequences of the decisions play out. Decisions from the mundane to the complex must be made almost daily, and the skill with which business leader exercises their discretion will be vital to the company’s health. In making those vital decisions, these leaders are often grouped into one of two camps – the instinctual and the intuitive.

The instinctual leader relies on emotions to make decisions. Instinct comes naturally, so it’s usually the default well from which many leaders make their decisions since it requires less work. Because instincts are tied to emotions, decisions based on emotions such as fear and anxiety on one end or over-optimism on the other can lead to decisions being made without proper analysis and thought.

The intuitive leader is only influenced by emotion to the extent that experiences and the emotions underlying those experiences inform their motivations and, in turn, their drive and goals in business.

​​For example, a leader who grew up poor often draws on the emotions of a hardscrabble childhood to motivate them in their drive to succeed. But, that’s the extent to which emotions inform an intuitive leader’s decision-making. Instead, the intuitive leader is mostly guided by analysis and carefully weighing all the facts, figures, and metrics relevant to a particular task or decision. Spreadsheets, calculations, projections, and studies that offer the best prediction outcomes are relied on to make the optimum decisions confidently.

With the instinctual leader, risk-taking is the name of the game. For the intuitive leader, it’s all about risk mitigation.

In investing, two types of mindsets distinguish investors:

  1. The speculative/instinctual investor; and
  2. The intuitive investor.

The speculative mindset leans on emotions when making investment decisions, while the intuitive mindset is more analytical.

The Speculative Mindset –

A speculative mindset is one driven by emotions. Like a gambler thrives on the high from winning, investors with a speculative mindset are continually chasing that rush – whether from the thrill of the hunt or the payoff from a big win.

These are the main distinctions of the speculative mindset:

  • Constantly Searching for a Win. These investors are constantly looking to hit that big home run. The potential thrill from a win outweighs any disappointment from a potential loss. Some investors even justify losing as a necessary part of the game if you want to hit the jackpot.
  • Chase the Next Shiny Investment. These investors are constantly following the herd and continually jumping on and off of the latest bandwagon or trend. They’re motivated by a need to be accepted and the fear of missing out (FOMO).
  • Consumed By Media and Opinions. Because these investors rely very little on their own decision-making, they prefer to follow the buzz and hype generated by the media or on the internet and social media. They don’t necessarily analyze the opinions of others; they’re more attracted to the buzz and hype surrounding a person or organization than what they actually have to say.
  • Easily Swayed. Because these investors act on their emotions and because emotions are easily manipulated, they are easily swayed by the actions and words of others – to the detriment of their reasoning and decision-making.
  • Prize Liquidity. These investors prize the ability to get in and out of investments instantly to act on their emotions and urges. They have no patience, and their frantic investing activity reflects this.
  • Only Interested In High ROI and Growth. These investors buy low and sell high and are only interested in that spread. They cannot predict with any certainty that their investments will pay off, but it doesn’t keep them from trying or hoping.

The Intuitive Mindset –

The emotions that drive investors with an intuitive mindset are joy, peace, and satisfaction. They seek the joy of spending time with family, loved ones, and friends on their terms and timetables. They seek the peace that comes from never having to be afraid of losing their jobs. Finally, they seek the satisfaction of providing for future generations and their fellow human beings through estate planning and charitable giving. These emotions drive the motivations of investors with an intuitive mindset, but emotions don’t drive their decision-making like investors with a speculative mindset.

These are the main distinctions of the intuitive mindset:

  • They’re Analytical. Investors with an intuitive mindset rely on facts, figures, data, math, and metrics. They leave little to nothing to chance to maximize the probability of success.
  • They Don’t Chase Investments. They’re less interested in the next big thing than what has already been proven. That’s because the next big thing doesn’t have a history and can’t be analyzed, while tried and true investments have a history of proving their performance and worth. These assets lend themselves to modeling and projecting, which allows for proper wealth planning.
  • They’re Secure With Investments Based on Long-Term Goals. Assets held for the long-term aren’t as sexy and don’t generate the same kind of buzz that the next big thing generates, but that’s ok with investors with an intuitive mindset. They’re comfortable in their own investing skin and seek long-term investments in assets with a track record of success. These assets are likely to continue that tradition of success, and that’s why investors with an intuitive mindset will defend these assets against their detractors and ridicule all day long.
  • Don’t Consume Media Talking Heads and Ignore Internet and Social Media Hype. These investors don’t care what others think. They judge investments on the merits and not on what others think about them.
  • Don’t Invest for Liquidity. Intuitive investors avoid liquidity because liquidity promotes herd behavior. Illiquid assets are insulated from knee-jerk market movements because the herds are prevented from acting on their impulses because of long lockup periods or non-transferability.
  • Invest for Capital Growth, Preservation, and Tax Benefits. Investors with an intuitive mindset pursue wealth from three angles: 1) cash flow, 2) appreciation and 3) tax benefits. When working in conjunction, these triple elements create a formidable wealth creation and preservation machine with two sources of returns (cash flow and appreciation) as opposed to a single source from speculative investments (appreciation).

When investing, do you have a speculative or intuitive mentality?

Are you driven by emotions or data?

The investment mentality can mean the difference between investing success and failure.

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