Technical analyst Lesley Beath wrote this post for Morningstar Australia from where it has been taken.
Animal spirits are alive and well in the stock market.
You will all be aware of the bulls and bears, as they relate to the state of the market, but what about as they relate to the personality of certain investors?
As you know, a bull market is characterised by rising prices and a bear market by declining ones.
But there are some investors who will always be bearish or bullish, no matter what the direction of the trend.
The "perma-bear" will always see problems ahead and they are prone to make somewhat exaggerated predictions of coming doom and gloom.
"Perma-bulls" on the other hand always look through rose-coloured glasses, believing that all is bright and cheery.
So, we have bulls and bears, and cats, as in the dead cat bounce.
But there is a lot more animal-like behaviour out there. And it relates to how the individual approaches his/her investment strategy.
Let's think about a few of these animals.
Lemmings are self-explanatory, as they follow the leaders without really thinking.
Sheep can be thrown into this group as well. They are easily led, investing on the basis of what their friends are doing.
They follow trends and the latest fads without taking too much time to really think about things.
And what about the ostrich? It sticks its head in the sand when things aren't going its way. You may know the feeling.
If there is a disastrous day in the market, or one of your holdings has come out with a bad result, you may choose to ignore it, hoping that tomorrow everything will be alright.
The ostrich may ignore negative news but the rabbit will freeze. The rabbit caught in the headlights will be so frightened or surprised that he can't act or think.
Then there are the pigs.
Pigs are high-risk investors looking for the one big score in a short period of time. Pigs buy on hot tips and invest in companies without doing their due diligence.
They get impatient, greedy, and emotional about their investments. They are drawn to high-risk investments, always hoping to the land the "big one".
There is an old stock-market saying that cautions against excessive greed and impatience: "Bulls make money, bears make money, pigs get slaughtered."
What about the individual who is constantly chasing the next best thing, jumping from one investment to another?
Some liken that behaviour to a grasshopper, bouncing here there and everywhere. Others liken this action to the cheetah--living fast and hard with no long-term strategy.
I'd like to throw in the rooster.
You know the type. They puff out their chest and crow to the world about their investment success.
It doesn't matter to whom they are talking--everybody gets a bit of their "wisdom". They will gladly tell you that you should invest in this or that.
If the latest "hot tip" does not meet with their expectations, or heaven forbid, they should lose money, then nothing is said.
They don't admit their failures. Instead, they become silent for a while. But it is only for a while, until the last failure is forgotten.
In a study at Nagoya University in Japan, scientists observed that "the most dominant rooster was the one who would start the crowing off, lending credence to the idea that crowing is about marking territory and asserting dominance".
That sounds a bit like some individuals. I am reminded of one of my father's favourite sayings--"a rooster one day and a feather duster the next!"
And what about the chicken? That one is probably self-explanatory as well. Too afraid to invest as they are frightened of losing money.
I think the mouse is a bit similar to the chicken, perhaps just a little twitchier.
I can picture the mouse popping his head out, looking around, and then going back into his hole.
At times he might scurry about a bit, but at the first sign of movement he will rush back to the safety of his hole.
Just like the investor who thinks it's time to buy the market but then becomes nervous and cannot do so. No ego or arrogance for this little mouse.
What animal do you think would be the best type of investor?
Maybe the tortoise, the ant or the squirrel? Perhaps a combination of the three. Slow and steady, industrious and a planner.
If only our emotions and egos would not get in the way of becoming all of those.