Your traits are important
Knowing how you act and react under pressure is an important part of stress management – whether in the field or in financial markets. Not understanding how you behave when bullets fly or markets begin to shift can lead to poor decision making and emotion trumping rationality.
“We use very rigorous psychometric tests,” says Greg B Davies of Barclays. The aim for Davies’ team is for you to gain a better understanding of your personality traits. “There are tools and techniques you can use to develop [which show that] some people should be doing less than others, some people should be less involved than others.”
The Financial Personality Assessments employed by Barclays are carried out to ascertain a person’s emotional stability; openness to new investment ideas; propensity towards either self-disciplined or impulsive behaviour; and conformity to advice and rules.
Being able to mentally override your natural instincts has been important in Chris Severson’s career. Whether in an F-18 or any other plane, the basic controls remain largely the same: more power equals greater speed, tilting the stick forward will drop the nose, tilting it back will raise it. However, all that completely changes when landing on an aircraft carrier – as Navy pilots are required to do. Because of the different style of landing approach, the controls must be used completely differently. For pilots to understand their previous thinking and overwrite that ‘muscle memory’ in a high stress environment (landing a multi-million dollar plane in the dark, on a short runway, on rough seas) is critical.
Understanding one’s traits can feed into smarter decision-making in two ways. When building a portfolio, understanding your aversion to risk will help inform the types of investments you should make. It will also help you understand how you’re likely to react when markets shift.
It’s important to appreciate though that, no matter what approach you take to investing, you can still lose as investments can fall in value.
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