Trading vs Investing

Introduction

Most people are interested in the markets but are intimidated, it can feel scary to gamble on the markets, but the fact of the matter is that it is a necessity and a necessity by design. The powers that be have moved bonds and pushed them into the dirt, you can’t make more than 2% if you wanted to without taking extraordinary risk in bonds. So if you want to invest for the future and retire you must invest in the markets in some way, shape or form. You can’t even NOT invest!

Inflation, as you have learned first hand this year, will eat at your purchasing power, its the silent killer, the carbon monoxide of your money. It will eat you alive.

So even if you wanted a shoe box full of cash that box would buy less and less, lets say you saved $10,000 in the year 2000, back then $10,000 would get you a pretty decent used car! Today it would get you not a decent used car. If you put that same $10,000 inside of an Index fund you would have $48,000 and enough to get you almost a full Tesla! That is inflation. So you can’t shoe box it!

So if you are new to investing and trading this will give you some context on what side of the investor/trader gap you want to fall. But the point is that you have to do something! Our world is not designed for the passive person.

Differences

Traders want to advocate that just throwing you money into something you never see is a bad idea and Investors want to say that actively managing your portfolio always leads to losses. Well the fact of the matter is that both schools of though have merit and neither are 100% correct.

Warren Buffet, Peter Lynch and the like believe that you should understand, fully, your investments and then invest. They have some great points! Coke, American Express, Sees Candies are great investments for Warren, they have preformed. But as they have gotten very large, they under perform the markets though are still highly valuable investments.

While there are few highly known traders, one I will mention is Dan Zanger, this guy is a trader through and through, he holds trades for a few days to a few weeks or months and jumps out. For a trader like him, me too, all it takes is some good background information and off you go!

Similarities

But just because there are different schools of thoughts doesn’t mean that they don’t agree on anything, there are some very similar schools of though when it comes down to money management and best practices. So even while they disagree on how to drive, they all agree on where to go and the rules to get there.

• Do not lose money
• Follow your rules
• Invest in high reward situations
• Be patient with your entries
• Understand your investments
• Understand the markets

Whether trader or investor you have to be professional, disciplined and know your rules. It is only the rules that differ!

Most investors won’t sell regardless of the market movements unless the WHY of their investment has changed. So Warren Buffet will not sell Coke unless they change something dramatically, they continue to be the brand he invested in so he stays.

Dan Zanger, or whatever trader you want, will invest based on another thesis. Is the price moving! That is basically the thesis, so if the chart isn’t doing what he thinks it should be doing he is out, if it behaves normally he is in.

So its the same thing just a different way of looking at the picture. Some people are going to the David statue and see an amazing reflection of a human and others will point and laugh at his junk.

How about you?

If you are not new to investing maybe this helps a bit understand the other side, they aren’t evil, they just look at the situation differently. That is ok because that is how markets work, everyone with different opinions and coming together to price and asset.

But if you are new then you can do your best to appropriate both methodologies, this is my favorite in fact. When your research and charts both look good you are likely onto something.

Investing seems easier, and is. Because its covered in this long-term mentality. But keep in mind if you invest long term in the wrong thing it can still be worthless. You can also trade your way to zero by making bad mistake after bad mistake.

In either methodology one thing you should be doing is eliminating mistakes, this is the hallmark of everything in life, not just investing. But don’t stick to your guns if you keep losing, you have to adjust.

You could be the next Buffet or Zanger as long as you adjust.

In future articles I will go deeper into investing and trading…. keep reading.