The Actuary archetype acts like an insurance company in reverse. An insurance company will write a large number of policies on a similar class of events. For example, the risk that your car will be involved in an accident.

The company has no idea whether your car will ever crash. And nor does it have any idea whether an individual vehicle will experience a minor dent, or be totally written off. What the insurance company can calculate is the average probability of claims per thousand policies it has written. And provided it has priced its policies correctly, it can be sure of making a profit – regardless of what happens to any individual automobile.

In the same way, the Actuarial investor has identified a class of investments that he knows -- if he buys them at the right price -- will make an overall profit, regardless of whether he suffers a loss on any individual investment. Like the insurance company, the Actuarial investor’s primary focus is on probabilities.

The legendary investor, Benjamin Graham, would only buy a stock at 35% to 50% of its liquidation (or breakup) value. Since he only investigated the numbers, and did not look at the management or the company’s products in any detail, he had no way of knowing in advance whether any single stock he bought would be profitable. But he did know that by purchasing a large number of such stocks at the right price, he would make money overall.

Like other Master Investors, Graham did not operate solely from this one perspective. Indeed, as the author of the classic investment books, Security Analysis and The Intelligent Investor, he is also known as a Master Analyst. Which indeed, he was. That’s how he identified the stocks he bought – but his investment system was actuarial in nature.

The extreme example of an Actuarial investor is the commodity trader following a computerized trading system whose buy and sell instructions are generated and placed automatically by the computer. His focus is not on any of his individual investments. He spends his time attempting to improve the reliability and profitability of his system.

One of the essential components – for such an approach to be successful – is a set of strict money management rules that limit the amount of your overall capital put at risk in any individual position to a small percentage of the entire portfolio. As a result, his portfolio will usually consist of a large number of individual investments.

(Note: Since you aren't displaying scores yet, you may want to remove or edit this next sentence) If your Actuary score is less than 25% you would be advised to improve your understanding of probabilities and how they can be used in the investment world.