Navigating the Markets: Deciding Between Trader and Investor Roles

The answer to the question in this post’s title is a matter of mindset.

The terms investor or trader are often used in place of one another. The fact is, all traders are a sort of investor but not all investors are traders. Before we get any further, let’s address the difference between a trader and an investor.

Trader

As the name implies, a trader is one that moves between positions. A trader often enters a position with the intent of selling. Most of the time, the intent is a short-term holding to take advantage of price movements.

Investor

The root word of investor (invest) conjures the ideas of time and money. To this end, investors, in a financial sense, often seek to put their money in for time. The point of a financial investment is to be part of a profitable journey. Investors often take a long-term approach to deploying their capital.

You can be both

Investing and trading comes down to mindset. Some folks only invest while others only trade. There are still others that trade and invest. There is no right or wrong on the matter. Our experience points to one’s overarching mindset dictating which approach one takes.

Traders are often more short-term focused and less patient. Investors often have a long-term outlook and will let stories play out. More often than not, folks will be one or the other with their portfolio. This is often driven by the fact that the type of research differs between the two approaches.

The type of research one performs is quite different between traders and investors. A trader might look at quantitative items like price momentum, technical analysis or market dislocations. An investor might look at qualitative items like profitability, management quality and competition.

No mixing

Some of the worst outcomes we have been witness to is a trader trying to apply an investors approach or vice versa. If we had to pick a worst situation it’s a trader trying to be an investor. Hear us out on this.

If an investor tries to be a trader the losses are often limited as the intent was short-term in nature. For the most part, stocks don’t make huge moves often. So, over the short-term the inflicted pain will often have limits. This is especially true if the trader uses stop losses on trading.

If a trader tries to be an investor and loses patience it’s often at the worst time. Meaning, to be an investor, one has to be willing to suffer some price setbacks along the way. For traders, these price setbacks often test their fortitude. Too often, the result is selling at losses.

Conclusion

You do not have to pick being a trader or investor. Keep in mind though that both have their own discipline and research needs. If it’s not obvious from the name and flavor of this site, we are long-term investors. We do not pretend to be traders but, we appreciate those successful traders out there.

This website and associated newsletter along with its content/links are not financial advice. Nothing in this newsletter is an investment recommendation. All content is created for entertainment, educational, or informational purposes only. My strong buy, accumulate, hold, reduce or sell opinions are exactly that – opinions. Be sure to do your own research for your own particular circumstances or higher a professional advisor.

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