I'm an investor, not a trader

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#1
The Straits TimesTuesday, Nov 26, 2013

To the layman, the terms "investor" and "trader" may appear to mean much the same thing - and I couldn't really tell them apart either when I started as a financial journalist four years ago. Fortunately, a remisier contact told me the difference before I could make a fool of myself. "Investors" refer to people who buy and hold shares for the long term, probably years or even decades, he said. "Traders", on the other hand, take a short-term view and look for quick profits - their holding period is minutes, hours or days at the most. With this in mind, I've been content being an investor, and a recent opportunity to trade currencies and stock indexes using a demo account has convinced me that trading is probably not my cup of tea. To each his own, of course. But no matter what you choose, you should be very clear from the get-go in deciding whether you want to be an investor or a trader. The tools involved in performing each role are as different as chalk and cheese. Investors look at the health of a company - its financial statements, business prospects and dividend yields - in a field of study known as "fundamental analysis". Traders, on the other hand, use "technical analysis" - the study of chart patterns to determine where the price of an asset is heading.

One trader's comment sticks in my mind. He said he didn't care about the quality of the asset. "I could be trading jellybeans, for all I'm concerned," he said. "All that matters is where the price is headed." Put a trader and an investor in the same situation and they may take exactly opposite action. If a trader holds a stock which plunges, he will deduce that the tide has turned against him and sell the stock quickly to cut his losses. But an investor in the same situation may well look to buy more stock at the cheaper price, if he is confident about the company. All the books I read when I started out were on investing rather than trading - so I've always been more concerned about the company prospects for the shares I buy, rather than what the price will be in a day or a week. Last month, though, I got my chance to try out trading. A brokerage offered a crash course to journalists, and opened demo accounts for us to try trading. We were given $100,000 in fake money to trade on the platform, which offers trading in foreign exchange (forex), commodities and stock indexes. Clueless as I was, my first trades just followed the tips in one bank's technical report, which I received in my work e-mail. They involved betting that the New Zealand dollar would fall against the US and Singapore dollars - asset classes which I knew very little about.

But the experts were right. Soon I was $4,000 in the black - and the thrill of making money, even fake money, got me quickly hooked. "Hey, this is easy, I'm making money just by following the experts," I told myself. I wasn't the only one getting into it. A colleague who went with me for the talk told me "this is really addictive", as he actively monitored his trades on his phone. That night, I spent hours reading up on the tools of traders, such as chart patterns with bombastic-sounding names. But before I could celebrate, things started souring and I began to lose much more money than I made. "Perhaps it's because I don't understand forex enough," I thought, as I started betting on the Tokyo and New York stock indexes as well. That hasn't helped much, unfortunately. At the time of writing, my account is down to $79,500 - meaning I'd lost more than 20 per cent of my seed capital in one month. I cannot help but compare this to my long-term stock portfolio - many of my shares are in the black and have provided me with healthy dividends to boot. Why the difference? An explanation may lie in the fact that trading is largely a zero-sum game - if you win on a trade, there will be another trader out there who took the opposite position and is nursing losses.

Considering that the forex and stock landscape is increasingly dominated by ultra-fast computers that can react faster than you can to data and chart patterns, you are almost definitely going to be on the losing side. Traders claim that the tools of technical analysis give them an edge but they're really swimming against the tide. New York-based online newspaper International Business Times said in 2011 that 70 per cent of retail traders lose money, while other articles claim higher figures of more than 90 per cent. My colleague compared trading to gambling and his analogy makes sense. Both can be addictive and tend to make people lose money over time. For novice traders like me, making a trade is taking a stab in the dark, like placing a bet at the roulette table. Compare this with investing. Stocks can generally be expected to grow in value over time owing to economic expansion, which will improve the profits of companies. So, while traders will find it hard to tell what a stock's price will be in a day or two, investors can reasonably expect their holdings to go up over many years. This difference means that investing is no longer a zero-sum game - all parties can win from it. Considering that regular folks like you and me are at the bottom of the food chain, investing long term is probably one of the better ways to avoid being eaten up by the experts and computers for a quick profit.

The longer holding period for investors also allows more time for you to recoup your losses. Of course, you must keep to the basic rules of diversifying and buying some dividend stocks to ensure a flow of income. Still, trading can be fun if I don't lose actual money. So while my real money will continue to go into long-run investments, I'll keep on trying to make fake money - or minimise the losses - on my demo trading account. I intend never to risk any of my hard-earned savings in trading forex or stocks. It's just like the Blackjack game on the mobile phone - not involving real cash and played only for fun. So, excuse me while I study the charts of the US dollar-Japanese yen movements. I'm down to $79,500 in my demo account, and just hope that I won't slide to zero.

http://business.asiaone.com/news/im-investor-not-trader
Research, research and research - Please do your own due diligence (DYODD) before you invest - Any reliance on my analysis is SOLELY at your own risk.
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#2
While we may not be traders, the Companies that you invested in have to be traders one way or another with their US$, A$, Yen, RMB, M$ and others such as steel, coffee, oil, soyabeans, etc.
Indirectly, all investors are traders.
If your Company lost big time in trading such as SembCorp in forex one time, it will affect you through the share price.
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#3
Wink 
Well i dont think the holding period of the stock makes you are trader or a investor.. if that is the way to gauge.. then i know of people who are invested in digiland for damn long already HAHAHAHA Big Grin

I suggest reading the foreword of the 6th edition of security analysis written by Warren Buffett and Seth Klarman for what defines speculation and investing rather than the piece of news article.
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#4
(26-11-2013, 01:34 PM)Andrewgoh Wrote: Well i dont think the holding period of the stock makes you are trader or a investor.. if that is the way to gauge.. then i know of people who are invested in digiland for damn long already HAHAHAHA Big Grin

I suggest reading the foreword of the 6th edition of security analysis written by Warren Buffett and Seth Klarman for what defines speculation and investing rather than the piece of news article.

Totally agree you Andrew on the irrelevance of holding period to determine one being a trader or investor.

I have yet to read the Security Analysis, but my thinking is the difference comes from psychology. How traders and investors think about stocks.

An investor would analyse the business fundamentals like a private investor, the market liquidity just presents an entry point. The blurring comes about when Mr Market decided to play with timing.

Let's say you are an investor and you bought a stock based on fundamental analysis and the next day for some reason or another value is unlocked and price goes through the roof. U sell but have you suddenly became a trader? No, but on the surface, your buy and sell actions are probably indistinguishable from that of a trader.
A stock well bought is half sold - Ben Graham
Price is the most important factor to use in relation to value - Walter Schloss
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#5
I find these debates over defining activities into discrete boxes like “trading” and “investing” actually do more harm than good. Even more harmful is the motivation for defining such terms which are often done to demonstrate superiority and the putting down of anyone who happens not to share the person's view on money making. One author I respect aptly terms it as "The grass is always inedible on the other side of the fence" syndrome.

This is a distraction at best and creates a false sense of assurance if worse. Any economic activity is multi-faceted with elements of both trade and investment; without generally acceptable codified principles to arbitrate we can all argue till purple face and nothing will come out of it.

Wikipedia defines a trade as “the transfer of the ownership of goods from one person or entity to another by getting something in exchange from the buyer” - That sounds like a decent enough description of an economic activity practiced by anyone who dabbles in the markets.

Investment is summed up as “putting money into an asset with the expectation of capital appreciation, dividends, and/or interest earnings”. - Again this is a generic enough definition that everyone can agree on and am practicing as long as they are participating in the markets be they short term / long term, chart reading / fundamental reading, psychology / rational, mechanical / non-mechanical etc.

I would also like to add one more term that most people do not like to be associated with – Gamble, which Wikipedia describes as “the wagering of money or something of material value on an event with an uncertain outcome with the primary intent of winning additional money and/or material goods” Sounds like what any market participant is doing as well.

My personal view (haha) is that as long as you are buying or selling a stock, a contract or a physical good / service with the intention of making money, you would have been involved in investment, trading and gambling. Now of course the exact mix of these 3 main elements will vary from activity to activity and a lot of times the participant might arrive at a different assessment of himself compared to what others may perceive what he is doing, but I do not believe in the false trilemma that any market participant is only doing one element to the exclusion of the other two.
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#6
Once, few years ago, someone told me this. Aga aga it went like this...

"When you buy a share of the company in the exchange, are you investing in the company? The answer is no. The only time when investing in a company is done is during IPO, when the money ACTUALLY goes to the company. Other than that, you are just trading a part of the company."
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#7
(26-11-2013, 02:56 PM)mobo Wrote: I find these debates over defining activities into discrete boxes like “trading” and “investing” actually do more harm than good. Even more harmful is the motivation for defining such terms which are often done to demonstrate superiority and the putting down of anyone who happens not to share the person's view on money making. One author I respect aptly terms it as "The grass is always inedible on the other side of the fence" syndrome.

This is a distraction at best and creates a false sense of assurance if worse. Any economic activity is multi-faceted with elements of both trade and investment; without generally acceptable codified principles to arbitrate we can all argue till purple face and nothing will come out of it.

Wikipedia defines a trade as “the transfer of the ownership of goods from one person or entity to another by getting something in exchange from the buyer” - That sounds like a decent enough description of an economic activity practiced by anyone who dabbles in the markets.

Investment is summed up as “putting money into an asset with the expectation of capital appreciation, dividends, and/or interest earnings”. - Again this is a generic enough definition that everyone can agree on and am practicing as long as they are participating in the markets be they short term / long term, chart reading / fundamental reading, psychology / rational, mechanical / non-mechanical etc.

I would also like to add one more term that most people do not like to be associated with – Gamble, which Wikipedia describes as “the wagering of money or something of material value on an event with an uncertain outcome with the primary intent of winning additional money and/or material goods” Sounds like what any market participant is doing as well.

My personal view (haha) is that as long as you are buying or selling a stock, a contract or a physical good / service with the intention of making money, you would have been involved in investment, trading and gambling. Now of course the exact mix of these 3 main elements will vary from activity to activity and a lot of times the participant might arrive at a different assessment of himself compared to what others may perceive what he is doing, but I do not believe in the false trilemma that any market participant is only doing one element to the exclusion of the other two.

That highlighted the importance of definition on terminologies used. Without a proper definitions, the discussion is meaningless.
“夏则资皮,冬则资纱,旱则资船,水则资车” - 范蠡
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#8
(26-11-2013, 04:39 PM)CityFarmer Wrote:
(26-11-2013, 02:56 PM)mobo Wrote: I find these debates over defining activities into discrete boxes like “trading” and “investing” actually do more harm than good. Even more harmful is the motivation for defining such terms which are often done to demonstrate superiority and the putting down of anyone who happens not to share the person's view on money making. One author I respect aptly terms it as "The grass is always inedible on the other side of the fence" syndrome.

This is a distraction at best and creates a false sense of assurance if worse. Any economic activity is multi-faceted with elements of both trade and investment; without generally acceptable codified principles to arbitrate we can all argue till purple face and nothing will come out of it.

Wikipedia defines a trade as “the transfer of the ownership of goods from one person or entity to another by getting something in exchange from the buyer” - That sounds like a decent enough description of an economic activity practiced by anyone who dabbles in the markets.

Investment is summed up as “putting money into an asset with the expectation of capital appreciation, dividends, and/or interest earnings”. - Again this is a generic enough definition that everyone can agree on and am practicing as long as they are participating in the markets be they short term / long term, chart reading / fundamental reading, psychology / rational, mechanical / non-mechanical etc.

I would also like to add one more term that most people do not like to be associated with – Gamble, which Wikipedia describes as “the wagering of money or something of material value on an event with an uncertain outcome with the primary intent of winning additional money and/or material goods” Sounds like what any market participant is doing as well.

My personal view (haha) is that as long as you are buying or selling a stock, a contract or a physical good / service with the intention of making money, you would have been involved in investment, trading and gambling. Now of course the exact mix of these 3 main elements will vary from activity to activity and a lot of times the participant might arrive at a different assessment of himself compared to what others may perceive what he is doing, but I do not believe in the false trilemma that any market participant is only doing one element to the exclusion of the other two.

That highlighted the importance of definition on terminologies used. Without a proper definitions, the discussion is meaningless.
HA! HA!
Life is always all of the threes, whether you invest in the market or not.

i always believe in the saying, “There is a divinity that shapes our ends, rough-hew them how we will.”
WB:-

1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.

Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.

NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
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#9
(26-11-2013, 04:38 PM)NTL Wrote: Once, few years ago, someone told me this. Aga aga it went like this...

"When you buy a share of the company in the exchange, are you investing in the company? The answer is no. The only time when investing in a company is done is during IPO, when the money ACTUALLY goes to the company. Other than that, you are just trading a part of the company."

I never think of it this way before.

This is really food for thought. Hmmmm.....
My Dividend Investing Blog
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#10
True investors like warren buffett buy businesses not stocks
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