WHICH TYPE are YOU? 3 Investor Worldviews... | Episode 105 - a podcast by Bryan Ellis - SelfDirected.org

There are only 3 fundamental worldviews when it comes to investing.  Until you know which one you are, you’ll constantly “get in your own way” as an investor.  I’m Bryan Ellis.  I’ll help you figure out which one you are, and help you to be the best of who you are as an investor RIGHT NOW in Episode #105.

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Welcome, my friends, to another excursion into investment excellence.

Folks, we all love a good self-assessment.  Who among us hasn’t taken a personality test just so we could read about ourselves?  Or maybe an IQ or aptitude test to see just how smart or gifted we really are?

 

So, let’s pull back the curtain in your brain to see where you stand.

There are really only 3 basic investment worldviews:  The trend follower, the contrarian, and what I’ll call the infrastructurist.  You’re quite certainly more of one of those than the other two.  In other words, you have a single dominant approach.  But all 3 are completely valid.  Which are you?

Let’s figure that out right now.

Investing Worldview #1 is the trend follower.  This type of investor looks for the asset that’s already profitable, and buys in under the assumption that success breeds more success.  This is the investor who, right now, would buy Apple stock because it’s done so well for so long.  This investor would, right now, buy into real estate in San Francisco because it’s a super-hot market.  The trend follower isn’t a value investor.  You’ve heard the phrase “buy low, sell high”?  Well, the trend follower doesn’t do that at all.  The trend follower buys high – and hopes to sell higher.

Investing Worldview #2 is the contrarian.  The contrarian believes that nothing is forever, and everything operates in cycles.  As such, he looks for assets that are about to switch direction in value, so that he can capitalize on being IN FRONT of trends before they happen.  The contrarian profits by jumping into an asset before it’s popular, and taking advantage of the wave as the out-of-vogue asset becomes “cool” again.  This is the very essence of the “buy low, sell high” approach.

Most investment experts end the discussion with trend followers and contrarians, but I know there’s a third investing worldview, which I call the infrastructurist.

What is infrastructure?  It’s the basic structural “stuff” needed to make an organization or enterprise function correctly.  In the context of a country, it’s things like roads, bridges, power plants, etc.  But in the context of business, infrastructure is really just one thing:  Capital.  And the infrastructurist deals in capital rather than in the things that capital can buy.  A simple generalization is that the infrastructurist is usually focused on DEBT investments – lending, in other words – rather than EQUITY investments.  If you’d rather make loans to the person buying real estate in San Francisco rather than buy the property yourself, you’re an infrastructurist.  If you’d rather buy bonds issued by a company rather than their stocks, you’re an infrastructurist.

There is absolutely merit to each one of these approaches.  The key for you, my friends, is to figure out which one you TRULY are.  Investment strategies that appeal to the trend follower will likely be anathema to the infrastructurist, for example.

But here’s the big idea I want you to take home with you from this discussion:  Most investors BELIEVE themselves to be Trend Followers, because that’s what’s publicized as the “right way” to invest.  Everyone sees what’s happening with Apple stock over the last several years… we all see what’s happened to San Francisco real estate… and those things look appealing.  And frankly, following the crowd is what we’re taught to do.

Maybe that approach matches who you really are, but my friends, you and I are not “Sheeple”, we’re people.  You’re not just an investor, you’re a SELF-DIRECTED Investor, and that distinction is truly important.  What that means is that you make your investment decisions independently… your own criteria, your own objectives, your own values.  You inherently DON’T follow the crowd.  Doesn’t mean you won’t buy Apple stock or San Francisco real estate… it just means that you don’t trust Wall Street, the media, social pressure or even your financial advisor to make your investment decisions for you.

You understand, at a core level, that nobody cares as much about your portfolio as you do.

There’s one CORE VALUE of wise self-directed investors, and it is this:  We self-directed investors RESPECT our own capital.

That capital came as a result of your own toil and trouble, or through the blood, sweat and tears of someone who cares about you.  It deserves your respect.

But without a clear plan to achieve it, the notion of “respecting your own capital” is just a platitude.  So the way that wise self-directed investors like you and me actually implement the core value of respect for capital is through the consistent application of the S3 Criteria.  The S3 Criteria demands that we evaluate, and constantly re-evaluate our investment choices by these standards:

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