Page 16 - DCOM507_STOCK_MARKET_OPERATIONS

Unit 1: Basics of Investment

4. Unprepared Investor Notes
Characteristic
 The unprepared investor tends to put off investing. This investor is not happy with
his or her current financial situation and prospects for a secure retirement, and lacks
confidence in his or her investment ability.
Strengths

 Understands the importance of investing and is willing to learn — even though he
or she can be a slow starter.
Weaknesses

 Invests too little, too late and not regularly.
 Holds losers too long.
 Ignores taxes and expenses.
 Often concentrates too much money in a single investment.

 Does not regularly rebalance his or her portfolio.
Managing Director of the Pune based Sardesai Finance talks about the different kinds of investors
he has come across in his planning practices:

1. Trustful: These investors typically are professionals such as doctors. They are aware that
they do not understand the field of finance and hence seek a knowledgeable financial
planner. Thereafter, they place their trust in the planners and their freedom.
Returns: Generally, have had poorly performing investments before visiting the financial
planner and are happy to have reasonably performing investments.

2. Knowledgeable: These investors tend to be up to speed on all financial aspects of their life.
They seek help mainly with a view to enhance their returns. Such investors like to take on
above-average risk and are active themselves in stock selection.
Returns: They want high returns — much above average. They don’t necessarily achieve
these since they tend to lack patience and their over enthusiasm in making changes tends
to set them back.
3. Distrustful Wanderer: This is a difficult investor to deal with. He or she has half-knowledge
and gets this knowledge from tips and gossip. They are generally distrustful of even the
financial planner. They move from one financial advisor to another.
Returns: They want to get better returns than their peers but lack the understanding of
risk. Usually don’t get anywhere financially.
4. Long-Termers: These investors spend time and energy understanding their investments
and are willing to pay for sound financial advice. They are investing for the long-term
after understanding the risk-reward equation. They are much disciplined, set their
long-term objectives and work with the financial planners to achieve it. Within this category
there are two types of people:
(i) Conservatives: They are risk averse and tend to shy away from equities.

(ii) Liberals: They are willing to invest in equities with a long-term view and are not
bothered by short-term fluctuation.
Returns: They achieve their financial goals and are not bothered by what the others are
doing. The liberals tend to achieve the goals more comfortably than the conservatives.

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