At the risk of overstating the obvious, there are important differences between traders and investors. Their timelines differ, as do their goals, preferred assets and methods. Yet some of what I have been hearing from members of each group suggests they themselves can sometimes become confused about these dissimilarities. Blame the recent market volatility for this.
Because of my background, I understand both perspectives: I began on a trading desk, where I did pretty well, if you ignore the several times I nearly blew up. Not just money-losing months — all traders suffer through those occasionally. I mean total destruction. Those experiences sent me searching for a better understanding of investor psychology, into a decade-plus doing sell-side research, and ultimately, to the buy side as a money manager.
So I’m familiar with both sides of the aisle, whether it is as a short-term trades or a long-term asset manager. That lets me spot the trouble that arises when I see folks dancing back and forth over that line.
It is an old cliche because it’s true: Trader’s should never let a bad trade turn into an investment; investors should never try to trade in and out or time the markets.
A quick review explains why investors should invest, traders should trade . . .
Continues here: Don’t Even Think About Trading Places in Markets
Put in a few thousand trades during your youth and soon you will become an investor *. Put in a few thousand more hours of research and you will be a proficient investor.
* granted that you kept a little from the trader years or quit the whole thing and went into insurance sales …
Many decades ago I met a stock market specialist who was a Vietnam veteran. He said in Vietnam there was the saying “There’s the quick and the dead.”; then he said “In the stock market there’s the quick and the poor.”. This was a time when people did the trading and there were no HFT or other computer automated schemes. By quick he meant the real-time ticker; by slow he meant the 15 minute delayed ticker – a far cry from the HFT of today.
In general time can be categorized as past, present, or future. The past is all events that have occurred; the future is all possible events that may occur; and the present is the time between the past and the future. For example you plan to have a celebration of the new Government Fiscal Year on Saturday, October 3rd (with hopefully no Government shutdown). Your plan is to have a barbecue steak dinner. In order to determine the number of steaks to order, you send out invitations asking potential attendees to RSVP by September 30. With regard to the number of steaks to order, the time between September 30 and the time you send out the invitations is the present time.
Given the above, as an investor, I conclude that any comments I hear on TV are history. The next day the comments are ancient history and are ignored in favor of the current comment d’jour.
To be a successful trader you would need to be able to imply a future event from a past event and act fast enough before the implied future event becomes a past event. Given computers, the present may only exist for milliseconds.