Investing is not Trading, Trading is not Investing

Chapter 2

The common meaning of Investing is to buy something (shares of the company's stock) with the expectation it will have higher value in the future. Investing can be with Real Estate or Education or any venture that is hoping for a better result than the cost of it.

 Investing

Investing has many different styles, but only one goal: profit. Profit can be selling at a higher price, or from dividends paid to the shareholder.

Normally an "investor" for this site means buying shares and holding them for months or years (any dividends paid are just a bonus). There will come a day when the shares would be sold again with the hope of making money and leaving near the peak of the expected value. We don't believe in holding a stock for eternity. It doesn't make sense since conditions change. Re-evaluating an investments worth needs to be done periodically. "Is this still a good investment?"

There are ethical questions of "If I think it's bad investment now, why would another person buy it, and is that ethical to sell something I don't feel has a strong value anymore?" In our view there are many perspectives on the future value for a company. We don't know the future. We have our belief and clues for getting out of a stock. It doesn't mean we are perfectly right. However, we need to look after our own best interests. The universe is built that way. We can't expect others to look out for our interests, and certainly wouldn't expect others to manage our investments and future.  Others have a different feeling and expected outcome for the investments future, and they will invest accordingly.

 Trading

Trading uses shorter time frames. And it has the advantage of being able to profit from a rise or fall in the stock's price.

The goal for trading is solely profit. In fact, hanging on to a position is typically for minutes, hours or days. In our view, trading means a maximum of a few days, never longer. The approach is to spot bursts of movement (exceeding normal movements) and get paid for spotting those movements. The burst (short-term trend) will end and the trader would leave near that end. If a good profit is achieved then that's also a good time to leave. Occasionally a trend will continue and we don't mind because the goal is to be paid, not be perfectly right (which is impossible). Being paid is possible and the primary purpose. When a reasonable profit is available, get paid. Many traders lose money on profitable trends because they hope to get more out of it. The peak is gone and they start watching their potential profits erode with a emotion-based hope.

Investing and trading have some factors in common: deciding what is a good opportunity, and needing to be rational about the time to leave.