Monthly Archives: November 2009

Investing vs Trading

Are you an investor or a trader? Are you in it for the long haul or the quick fix roll of the dice?

Oops. Was that pejorative? Are my true colours showing? Perhaps I can control my personal biases by admitting up front that I consider trading, especially day trading, a form of gambling.

An investor takes the long view. 5+ years is what I normally see. Many are looking at a very long term 20-25 years. These type of time spans will encompass a number of business cycles. Each cycle tends to be focused on a certain sector or two, and often ends when a sector bubble driven by speculation or an overheated economy bursts, or a general correction realigns the overall outlook for the economy as a whole.

Therefore in order to be successful, a long term investor needs to spread his/her monetary investments across a diversified selection of asset classes, sectors, investment styles and geographical regions. Central to this process is an understanding that we cannot predict the next big thing or hot issue, and so must take the high road, and be ready and in place before the action begins in order to take advantage of growth opportunities in the markets. This also means that we understand that we must sacrifice immediate gratification for long term prospects. It is the sit and wait vision of investing.

On the other hand, a good day trader, who is working “The Next Hot Thing”, knows enough to close out his positions at the end of the day, because untold havoc could occur while he/she sleeps, blissfully oblivious to the carnage being wreaked on the Asian or European markets.

The highs and lows that a day trader experiences are not for those who’s sleep patterns may be disrupted by the goings on of some obscure commodities future exchange in some faraway place which no one you know has ever heard of.

I make only one recommendation to those who are serious about trying day trading. Don’t use your real money. This is not someplace to expose your retirement savings, or your kid’s college fund. If you want to try out the roller coaster ride of the FX pits, or lottery winnings of a diamond mine in the Arctic, please only use money you can afford to lose. Use your play money.

For those who believe that they have watched enough business tv, and have become experts in the lingo, and listened the the pundits propound this or that next hot thing, or come up with some quasi rational explanation for the latest jump/dip or hokey/pokey in today’s market, I leave you with one thought.

By the time a news item makes it onto your screen on BNN or MSNBC, it is already 36 hours old, and all the professionals on the street have already acted upon it, and any profit that was encapsulated within that new information has been extracted and wrung dry. You will always be the last person to know.


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Filed under Commodities, Day Trading, FX, Investing, Stock Market