Are You A Trader Or An Investor?

In one corner you have traders, in the other, investors. These labels are often used interchangeably. Both participate in the stock market but that's where the similarities end. These are two very different groups, with very different outlooks.

Timeframe

Traders has their eyes on the now. They frequently buy and sell stocks, aiming to profit through short-term price movements. Taking positions day-by-day, even minute-by-minute.

An investor is agnostic to short-term price movements. They see themselves as business owners, investing in companies with long-term growth potential. Operating in decades, not minutes.

Passive investors own thousands of businesses across the globe through ETFs, expecting businesses (as a whole) to grow over time.

Traders are sprinters, investors are marathon runners.

Market Timing

Traders must make the right trades at the right time. Their concise timelines creates a high pressure environment where everything must line up. The stock market is notoriously unpredictable so this is a tall order.

An investor buys when the market is strong, buys when the market is weak, and buys when the market is neutral. It doesn't matter to them. A long timeframe allows for patience.

Effort

Trading is an ultra-competitive discipline. In order to have a chance of succeeding, a trader needs to live and breathe the market. Exerting enormous effort to research companies, monitor price movements, frequently trading, and using complex strategies. There are no days-off, something is always happening, even when the market is closed.

An investor doesn't need to do much. Once they have a risk-appropriate portfolio set up, all they need to do is keep investing. Investors can ignore the daily market noise and enjoy returns over time.

Results

Traders aim to buy low and sell high, but history shows us that most do the opposite. Year after year, active managers have failed to beat the market, and studies have shown that the more trading one does, the worst they do.

Investors won't get rich overnight, but if done correctly they will at the minimum be able to match market returns over time. Allowing them to grow their money in the long term, beating out most active traders, with little to no effort.

Comments

Today's Special: Humble Pie

You champion a project, fight for an idea, and then...reality sets in. That churning in your stomach isn't butterflies, it's the realization you've missed the mark. Pride will puff up your chest, and kick in the "defend at all costs" instinct. But arguing with the umpire never changed a call. Admitting you're wrong isn't a sign of weakness. It can strengthen your professional standing. In a world obsessed with the illusion of infallibility, the courage to adjust course is a breath of fresh air. It shows you're confident enough to be wrong, and adaptable enough to learn from it. Do your research, think critically, and stand behind your decisions. But when the data whispers (or screams) otherwise, don't be afraid to swallow that slice of humble pie. Be the first to acknowledge. Don't wait for someone to point out your mistake. Be open, take responsibility, and most importantly, focus on what you're going to do to address it. Don't dwell ...

The Art of Giving Feedback

Constructive feedback is an awkward affair. You don't want hurt feelings, but recognize the importance of honesty. You've tried the classic "hoping things will get better on its own" and unfortunately it hasn't played out. When giving feedback, here are a few things that I try to keep it mind. Start with empathy. Step into their shoes and understand their story. If you don't know, ask. Be genuinely curious. Feedback is a dynamic affair. Shared communication with a shared goal towards progress. Take the emotion out of it. Focus on the situation, not the person. Focusing on the person adds unnecessary weight to an already emotionally-bloated event. Be specific. Give clear examples. Vague feedback equals dismissed feedback. Doing above won't de-awkward things fully, but it will dampen it and increase the chance of better outcomes.

Negative Feedback, Positive Lessons

In the battle against plastic bags, a five-cent tax was shown to be much more successful at deterring usage than a five-cent credit for bringing your own bags. Carrots satisfy but sticks sting, and they sting hard. So we default to the less painful choice of avoiding loss. Loss aversion impacts the way we process information. A 2019 study invited participants to learn through a series of multiple choice questions. Each question only had two options to choose from. Whether guessing correctly or not, they would still learn the right answer. Despite the identical learning opportunity, participants were much more successful at recalling the answers they guessed correctly than those they got wrong. "You're right!" feels good. We savour the moment, analyzing every detail. "You're wrong!" stings. We want to quickly forget, dismiss, and move on. When we succumb to loss aversion, we miss opportunities to learn. Failure is part of the process. We'll experie...

Herman Ye

Search