The Four Investment Profiles

Observers can have all the mental qualities of a great investor, but without action they end up witnessing success instead of experiencing it. They are the bystanders on the sidewalk, the spectators in the stands, and the backseat drivers.

Speculators aren’t afraid to take action; in fact, they love action to a fault. These are the high rollers, the thrill seekers, the lottery lovers, the gamblers. They confuse risk taking with investing, and their risk tolerance may border on risk numbness as they pursue their dream of a big, fast payday. It’s buying something on the basis of its potential selling price rather than its actual value.

Collectors make up the third broad group we have identified. A Collector is simply someone who buys things on the basis of their emotional value rather than their investment value. It’s emotional value first and investment value second, if at all. Think of Beanie Babies.

Investors are a breed apart. Unlike Observers, they take action. Unlike Speculators, they minimize risk. Unlike Collectors, they buy on the basis of investment value. Investors are defined by their expectation for financial gain and the process they follow to minimize financial risk.

They don’t count on appreciation to bail them out; they make their money going in.

Investors follow a straight and narrow path—straight in that they move from knowledge to action and narrow in that they minimize risk and maximize return. It’s a way of thinking and a way of acting. This is the true north of the financial wealth builder—the Investor.