Investor vs. Trader - What Are YOU?
Real talk - I’ll never be a trader. I’ve spent half of my life as an investor but I never got the hang of trading.
So - what’s the difference between a trader and an investor?
Trading is using short-term strategies to make profits buying and selling stocks, commodities, cryptocurrency and other instruments.
Investing is using long-term strategies to gradually make profit by buying and holding a portfolio of stocks, mutual funds, and other investment instruments.
I tried it - in the late 90s and early 2000s, right before the dot com bubble burst, I tried to be a trader. I was buying penny stocks and spending my days reading the Wall Street Journal (this was when you had to read an actual newspaper, so that took a LOT of effort). Trading requires that you research and watch stocks on a short term basis - sometimes daily - to profit from slight upticks or increases in stock shares. It requires that you pay attention to microeconomics or what is going on in the economy and industry closest to your asset (your stock), but also macro-economics (the larger policies and conditions that could affect the industry and profitability of the stock). I learned 20 years ago, that I was not that girl. I learned quickly that there is a serious difference between trading and investing and I am an investor.
I Am An Investor
While I believe that there is money to be made in trading, there is also money to be lost. It requires intentionality - done right, trading requires strategy and concentration. It’s a gamble, but it’s a calculated gamble. I’m a planner, not a gambler. I know where I want to go and I am patient enough to plan a long trip to get there. That's my investment style - I’m buying stocks (mutual funds, actually), with the intention of holding them for years, even decades. I don’t chase stocks, my whole strategy is to wait - wait for the market to rise - and fall - and rise again, until I need the funds. I don’t time the market, I time my exposure - what I’m invested in - based on when I need the money. I have long-term money in super risky investments because I don’t need that money any time soon and I have short term money in less risky places, because I need to be able to access those funds (relatively) quickly. Is this the fastest way to make money in the market? Certainly not. But does it allow me to ignore my subscription to the Wall Street Journal and sleep cozy at night - yep?
As with anything related to personal finances - I had to be super honest with myself about who I was and what I was truly committed to. I’ve been to business school, earned a degree in finance and under no circumstances would I ever use any of it to manage my finances. While I know how to calculate a price to earnings ratio, price to sales ratio and compare debt to assets ratio of one firm against another - I’m never going to actually do that. Why? Because I’m not that into it - measuring, calculating, trading quickly, getting in and out of stock positions on a daily basis for a profit - that’s not me. And I’m ok with that. I’m not a trader.
There is money to be made in trading and there are hundreds of blogs and YouTube channels that can show you how to do it. I encourage anyone that is interested in trading to learn it, determine what you have available to risk, and try it. But I’m not that person and if you get into investing without seriously distinguishing investing from trading, you’re going to end up disappointed, broke and losing sleep. Understand you - understand your style, your level of commitment and interest and choose the moves and the methods that match your objectives. Happy trading! Or investing! Or whatever!
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