Are You Trading, or Investing?
That might sound like a stupid question, but let me explain…
Let’s talk about the differences first. “investing” sounds more serious, and puts the thought of long-term financial planning in the minds of most people. Investing is for retirement, to send a child to college, or to save up to buy a home. Right?
On the flip side, “trading” is often seen as active risk taking while being in and out of the markets constantly. You can probably envision a stressed out floor trader screaming like his economic future is on the line with every trade!
In reality, the stereotypes of both the investor and the trader may be flawed. There are good and bad executions of both methodologies — and for the most part, they can be one and the same.
Why? Well, technology!
The instant access to brokerage accounts has created a level playing field for anyone with a little extra cash. At one time, the traders you’d find in physical exchanges like the NYSE or CBOE had an advantage over the off-the-floor investors.
For starters, they had the ability to buy and sell at better prices. They could also respond to changing prices instantly. Anyone else had to call their brokers who would in turn call the trading floor to execute orders.
Thanks to electronic trading, any favoritism or information delay for investors has been eliminated. The internet has provided a mechanism to distribute price data throughout the world instantly. Previously at the exchange, a pit reporter would monitor and signal current prices to be disseminated. That time lag, whether it be in seconds or minutes, has been erased.
Now, anyone can see accurate, up-to-date price information instantly.
Online trading platforms have led to much greater trading volumes and market participation. Tens of millions of Americans now have online accounts with different strategies and investment goals. On any given day, thousands of Main Street “investors” are buying and selling mutual funds, exchange traded funds, bonds, options or futures.
The buy-and-hold days of buying a stock and placing the certificate in a safety deposit box for decades are gone. Thanks to the technology, timeframes are now shorter for companies and market participants like you and me.
Bottom line: The goal of investing, or trading, is to make money. Whether you identify as a “trader” or “investor”, motivation and risk tolerance will differ for everyone. The processes of investing and trading are the same from the standpoint of money management and discipline.
Keep it In the Money,
Chart of the Day: Check Out This Little Online Book Store
For about nine months, Amazon had been quietly trading sideways. Until Monday… During the early afternoon, the tech giant shot up about 2%. Positioning itself for a major breakout move, take a look at the chart:
This leads me to some interesting thoughts… Most of these “big tech” names went crazy last summer, topped out just around Labor Day, and haven’t really participated in any rallying since then.
Instead, we got GameStop mania — speculative runners dominating the tape.
I think what we’re seeing now is all part of the rotation back into “safer” stocks as the speculative unwind continues. Yes, we’re still seeing a massive surge in crypto, which I suppose you could categorize as speculative action. But if you’re looking at the stock market, a lot of the crazier plays are settling down.
In fact, they have been slipping since February… Along with the rotation into small-caps, industrials, materials, we’re also seeing some of these FANG+ mega caps catch a bid.
Will we see a repeat of last year for these high-flying tech names? It’s impossible to say for sure, but it’s definitely something to keep an eye on.
— Greg Guenthner