Investing is no longer the exclusive domain of economists, the wealthy, or Wall Street professionals. Today, anyone with a mobile phone can buy stocks, cryptocurrencies, or index funds while enjoying a leisurely breakfast at home.
In fact, a recent World Economic Forum report revealed that 30% of Generation Z begins investing in college, compared to only 9% of Generation X and 6% of Baby Boomers . Bitvavo, one of the leading cryptocurrency exchanges in Europe, also confirms a growing interest among young people (and those not so young anymore) in investing in these types of digital assets.
However, when it comes to investing, most people focus on the numbers, forgetting an equally (or even more) important aspect: psychology. Beyond charts, ratios, and trends, investment decisions depend heavily on our emotions and cognitive biases.
Many financial mistakes stem not from a lack of information, but from how we process it. In this regard, Gustave Le Bon said that “Human nature is the greatest threat to investments. Before trying to decipher the market, decipher yourself.” And a first step is understanding the profiles of different types of investors.
- Anxious investor: when the market feels in your body
This type of investor doesn’t use their head, but their gut. They experience every rise with euphoria and feel every fall as a physical threat. They tend to check their portfolio several times a day, even if they’ve invested for the long term, as if looking at the numbers could change the outcome.
This type of investor doesn’t usually fail due to a lack of judgment, but rather due to excessive emotional reactivity. Anticipatory anxiety, that feeling that something bad is about to happen, pushes them to sell too early or enter trades too late, while anxiety about missing a trend leads them to act rashly.
Interestingly, neuroeconomic studies have shown that losses can be very painful, and not just metaphorically, as they share the same brain regions associated with pain. Anxious investors experience this pain tenfold.
- Impulsive investor: real-time dopamine
The anxious investor avoids pain, while the impulsive one pursues pleasure. This profile sees investing as a constant source of stimulation. Buying, selling, testing, taking risks… every move generates a dopamine rush, like gambling in a casino.
Modern trading and investment platforms also make it easy. Designed almost exactly like social media, they are fast, accessible, extremely visual, and very simple, thus democratizing access to investments, but they can also pose a problem for more impulsive investors.
A little-known fact outside the investment world is that, as a general rule, the more you trade, the worse your average return tends to be. In this world, sometimes fewer trades are more. As Warren Buffett said, “I have no idea what the stock market is going to do tomorrow, but I know what it’s going to do in the long run: it’s going to go up.”
- Hyper-rational investor: the illusion of control
At the opposite end of these profiles is the person who has complete confidence in their analytical abilities. They dedicate a large part of their time to reading economic reports, using graphical analysis indicators, comparing metrics, and building systems to try to eliminate emotions.
From the outside, they seem like the ideal investor, but they can fall into a sophisticated trap: the illusion of control. In reality, the market spends much of its time in chaos, but because these investors hate uncertainty, they construct coherent narratives and see patterns even where none exist.
The hyper-rational investor isn’t necessarily less wrong than the emotional one; they simply convince themselves with data that they are right. The problem begins when they actively seek information to validate a decision already made or when they become so obsessed with the details that they lose sight of the bigger picture.
- Redeemer investor: the desire to “save” the market
It’s a type of investor that’s rarely discussed, but it’s quite common. These are people who consistently invest in projects, ideas, or assets with “hidden potential.” They’re drawn to what’s undervalued or what no one yet understands, which reveals an underlying emotional need: to rescue something that others have discarded.
In fact, this investment pattern bears a certain psychological resemblance to the “savior complex.” It’s not just an investment strategy, but a personal narrative. Investing in a struggling stock can be a way to reaffirm one’s identity: I see what others don’t.
The problem is that, in many cases, this tendency leads them to hold onto failing investments for far too long. They often give them the benefit of the doubt, with the false hope that one day they’ll take off. That’s not analysis, that’s an emotional attachment.
- Avoidant investor: the invisible cost of not deciding
This type of investor doesn’t lose much money, but they don’t make much either, simply because they barely invest. Or they invest extremely conservatively. They prefer security, even if it means missing out on many opportunities.
He always treads carefully, so by the time he deems a deal safe enough by his standards, the opportunity has practically vanished. From the outside, it might seem like prudence, but it often masks a fear of making a mistake and a deep-seated aversion to accepting the market’s unpredictability.
In reality, the mistake they’re trying to avoid isn’t so much financial as it is about identity, because the person thinks that losing means they’re a disaster. This perspective paralyzes them, so they’re always looking for some reassuring sign. In the long run, this indecisiveness is often more costly than it seems because it means missing out on many good opportunities.
- Follower investor: the tranquility of the herd
This is one of the profiles that has proliferated the most in recent times, especially since it is possible to follow other investors, either on social networks, where they share their strategies, or even copy their portfolios within the same trading platforms.
Their psychology is based on a simple idea: if many people do it, it must be right. They go with the flow, so they buy when, supposedly, everyone is buying, and sell when, supposedly, everyone is selling. Essentially, joining the crowd reduces individual anxiety and relieves the person of the burden of making decisions.
At first glance, it doesn’t seem like a bad idea. In fact, it can be a profitable strategy. However, it can also amplify collective mistakes. Bubbles and panics are not isolated economic phenomena, but rather shared psychological phenomena. In such times, it’s best to remain calm and avoid following the crowd.
- Narrative investor: when the story matters more than the data
This person doesn’t invest in numbers, but in stories. While they may consider prices, they are actually more drawn to compelling narratives, such as companies promising to change the world, revolutionary technologies, or supposedly unstoppable trends. Clearly, they are usually a long-term investor who shares the stock’s forward-looking vision.
Interestingly, the human brain is designed to understand the world better through stories, not statistics. That’s why a good narrative can be more compelling than a good balance sheet.
The problem arises when history replaces analysis. In fact, it’s not that these types of investments are always bad (some can be very profitable), but it’s important not to stray too far from economic reality because many brilliant ideas have failed because the market wasn’t ready to embrace them.
An important distinction: we are not just one type of profile
While these profiles help us identify certain psychological patterns, the truth is that most investors don’t fit neatly into just one. You might be impulsive with cryptocurrencies and a follower during times of uncertainty, for example. Or perhaps you behave in a hyper-rational manner, but adopt an extremely avoidant approach during turbulent times.
Beyond the label, the key lies in recognizing these patterns to identify which aspect of our psychology is influencing each decision. Because, ultimately, investing isn’t just about managing capital and keeping risk under control; it’s, above all, about learning to manage yourself.
References:
Tan H, Duan Q, Liu Y, Qiao X, Luo S. Does losing money truly hurt? The shared neural bases of monetary loss and pain. Hum Brain Mapp. 2022 Jul;43(10):3153-3163.
Bajo, E. et. Al. (2023) Psychological profile and investment decisions. Finance Research Letters; 58: 104245.
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