Rick Ferri had a really interesting article in Forbes yesterday identifying two types of investors: Right Brain and Left Brain. If you have the time I definitely recommend reading it here. In essence, Right Brain investors are impulse investors, while Left Brain investors make more balanced and calculated decisions.
When we see a $100 million lottery, our right brain says ‘Wow! Let’s get some.’ while our left says ‘Wait a minute. Let’s think about this.’ The odds for winning a $100 million jackpot are about 300 million to 1. The left brain reminds us of these odds, and stops us from spending our retirement money trying to win the lottery.
I agree that Left Brain Investors generally oversee more steady investment returns. But when I think of a Right Brain Investor, I also think of someone like Steve Jobs, whose decisions were risky (read his autobiography) yet yielded tremendous success.
So if you’re wondering which type of investor you are, Right Brain or Left Brain, here are some characteristics of each:
Right Brain Investor
- Acts on emotional impulses
- Focuses on possibility of winning rather than probability of losing
- Focuses on "beating the market"
- May work as a stockbroker or money manager
Left Brain Investor
- Carefully weighs the costs and benefits of a particular investment
- Provides more analytical thought
- Understands the probability of loss is more important than the possibility of return
- Examines all the facts before making a decision
- Favors safe investments over homerun stocks
- May follow low-cost index funds or ETFs
Overall, I agree with Ferri’s conclusion that Left Brain Investors will ultimately see less volatile returns, and that acting rationally is important with so much uncertainty looming. But then again, the market isn’t always rational, and investing on your gut instinct can have positive results. A Right Brain Investor may profit from a risky opportunity that a Left Brain Investor would avoid, and the former may be more likely to reap extreme returns as opposed to stable growth.
What do you think? Is there a situation where being a Right Brain Investor has its advantages? Which type of investor stands a better chance of success?
John Paulson
I think the ideal investor is someone who is about 55% left brain 45% right. You have to be creative however you have to have slightly higher tendicies to tread on the safer side of the risk line. Granted this is highly dependent on how the current market environment is however i feel that ballance is ideal in normal times.
I would have to agree completely. While I know that nobody is all left or all right, I think this is a good balance to have between creativity and risk while also saving some and being smart.
Agreed. The more volatile the market, the more the right brain investors will be hurt, but in the middle of a bull market like the late 1990s, the more a right brain investor can afford to take some extra risk. Of course, the problem for them is that those bull markets will eventually falter and their investing strategies will appear reckless in retrospect.
100% right brain investing and valuation all the way.
-Mark Zuckerberg
I can't complain.
-Kevin Systrom
So is this just another buzzword for how rationally you approach risk?
Ut eveniet est sapiente. Impedit est ut optio sit. Consequatur consequatur et molestias cum rerum tenetur. Necessitatibus numquam illo optio eos ut voluptas. Quia enim aspernatur cumque. Tempore quia nulla officiis doloremque at.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...