FEW people will admit to letting their emotions guide their investment decisions.

A typical investor may only rarely experience the raw instincts of fear and greed which so often guide City traders. But completely separating emotions from the tricky business of investment decision-making is no easy task.

Here, Times Money looks at the tell-tale signs that your head is being ruled by your heart.

Followers of fashion

Do you see a stock or investment that is shooting up in value and feel that you have to be in it? You are not alone. Following the herd is the most common psychological trait among investors and many pay a heavy price for it.

Justin Urquhart Stewart, a director of Seven Investment Management, says: “People should remember that this week’s fashion will be next year’s tank top. I often see investment portfolios which could appear on Antiques Roadshow as a piece of junk. They are littered with past fads, including Japanese and emerging market funds and technology shares.”

Investors addicted to riding on the back of the latest trend can console themselves with the knowledge that we all feel the temptation to pile into a winning stock.

Jason Zweig, a financial analyst who specialises in the psychology of investing, argues that online technology has made more people inclined to follow trends.

He says: “Before the internet, if you wanted to find out the price of a stock you would have to call your broker, or wait until the next day and find the price in The Times. Now, instead of this static snapshot, you have a film. People see the daily movement in price and think the stock price is predictable.

“Many people invest in shares because they like what the price is doing, but it is ultimately the performance of the company which will decide whether the stock is a good buy in the long run.”

The gut-feel punter

If an instinct for where a stock or market is going counts for more than a few months of careful research, you may well be an investor who is driven by gut feelings.

Mr Zweig says this bullish band of stockpickers are likely to be confident, wealthy, in a position of authority at work and have a sense of their own importance. Similar in character to the trader that follows the herd, a gut-feel investor will be a natural risk-taker who is prepared to end up sitting on a loss.

Of course, taking a risk can pay off. Bullish punters who took a chance on Marconi when the telecoms company’s stock price plunged from £14 to 1p have since made a tidy profit. But this type of stock picking is more akin to gambling than investing and savers who let their intuition guide their portfolio have more in common with a punter at a casino than an astute money manager.

Gut-feel investors should keep a diary of every time they have a hunch that a stock is on the rise. The results will stop them conveniently forgetting about all the times “winning predictions” go wrong.

Stubborn stockpicker

We have all met the pub bore who will stubbornly tell you that his football team is the best in the land, despite hard evidence to the contrary. A similar type of animal inhabits the world of investing. He, or she, will adopt a single-minded approach in investment strategy and ignore any information or economic data that does not support a call on the markets.

In his book A Mathematician Plays the Market, John Allen Paulos recalls how his stubborn approach to investing led to huge losses on WorldCom, the doomed telecoms stock. “When I visited WorldCom chatrooms, I more often clicked on postings written by people characterising themselves as ‘strong buys’ than I did on those written by ‘strong sells’. I also paid more attention to WorldCom’s relatively small deals with web-hosting companies than to the larger structural problems in the telecommunications industry.”

Not being able to admit you got it wrong can be very bad for your financial health. A stubborn investor will be unwilling to turn a paper loss into a real one, thereby missing out on the chance of selling up and recouping losses by investing in a winning share.

Nervous disposition

Risk-averse investors fear the prospect of the financial markets deciding the future of their savings. Meera Patel, a senior analyst at Hargreaves Lansdown, the independent financial advisers, says such investors often keep their savings in cash and are left frustrated by the relatively low rate of return on their investments. Those who fit this category are often fearful of adrenalin rushes and so are unlikely to spend their weekends at the betting office.

JOE MORGAN