It’s been like this since I got my first credit card. I was 21 years old, just out of college. One day I got an American Express card in the mail. Suddenly I could go out to eat, splurge on birthday presents. I loved it.

Ten years later, I have a wallet full of maxed-out credit cards and no money. Still, every so often I have a brief period of clear-headed financial thinking. Like two years ago, when I invested $25 in a mutual fund. I continued to have $25 automatically withdrawn from my checking account and deposited every month — until I realized I was actually losing money, because I would forget about the automatic transaction and overdraw my account. At $250, my little nest egg stalled out.

So when I heard about the seminar “Evaluating Your Investing Personality,” I figured maybe I was ready to try again. But walking into Penn State’s Smeal College of Business Administration Trading Room, I felt conspicuous. The Trading Room, a replica of a real-world trading environment — two flat-screen monitors on every desk, three big-screen televisions showing various financial networks, neon numbers hurrying across wall-mounted tickers — brought to mind my days temping in New York investment banks while trying to make it as an actress. Here I felt only slightly less out of place. It was standing room only. The walls were lined with people, all of whom, I guessed, already knew more about investing than I ever would. I found a spot at the back of the room and tried to follow as Penn State finance professor J. Randall Woolridge, looking like he’d just come from a golf game in his polo shirt and khakis, jumped from point to point so quickly that his slide presentation could hardly keep up.

He was talking about how certain aspects of our personalities lead to the mistakes we make when investing. To illustrate, he had us take two online investing-personality tests. We started with American Express’s What kind of investor am I?, a retirement-planning tool.

1) If an investment that I owned in the stock or bond market dropped in value by 10%, while similar stocks or bonds did not decline or even went up, I would most likely be inclined to . . .

I read through the possible answers, looking in vain for d) I have no idea. Based on my subsequent guesses on this and the following questions, American Express tucked me neatly into the “low-risk capacity” category. I’m a careful and worried investor, it said, likely to guard my money rather than spend it.

Hmmm.

The next test, known as the Psychonomic Investor Profile test, or PIP, at psychonomics.com at least had questions I could answer. Are you good at dealing with money matters? Do you ever get nervous, stressed, or edgy? Psychonomics divides investment personalities into six types — cautious, emotional, technical, casual, busy, and informed — and works on the assumption that individuals will treat different aspects of their life in the same way; if a person tends to be cautious in relationships or at work, it is likely that her investment decisions will also be cautious, and so on. Here I was pegged as “emotional.” The test said I act with my heart and not my head, and have a hard time getting out of bad investments. It described investors like me as having an unreasonable belief that things will come right in the end.

When the testing was done, Woolridge asked us to think about the feedback we had received: Was it consistent with how we thought of ourselves? Had we learned anything?

It was easy for me to disregard the first profile — “low-risk investor.” The “emotional investor” tag, though, was closer to the mark.

It’s true; I let my emotions get the best of me. In dating, career, family — you name it — I follow my heart, go with my gut, and, in spite of the evidence to the contrary, tend to believe that things will work out. Why should my investments be any different? I resolved then and there to start using my head.

So this month, ignoring my emotions, I actually looked at my mutual-fund statement instead of tossing it aside. The news was not good. My nest egg had fallen to $89. My reaction was, well, emotional.

But even professional investors make mistakes, Woolridge had said. Why? Because we all, to a certain extent, ignore the facts. Some people tend to be overconfident and optimistic. Others misperceive luck as skill. Both can lead to what Woolridge called the “disposition effect,” i.e., not knowing when to sell — the cause of many an investor’s downfall.

I remembered Woolridge’s advice: “Take your emotions out of your investments.” Then, using my head instead of my heart, I came up with a long-range plan: Stop wasting money, start saving money, so that one day I may actually have money to invest. Hey, a person has to start somewhere.

So far, so good, I’m happy to report:

It’s only a week until payday, and I still have plenty of quarters.

To learn more about the Trading Room, contact Phillip Bolda, Smeal College of Business Administration; 814-863-0345; pxb36@psu.edu.

This page was last updated Monday January 06, 2003.