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Investment

Trading vs Investing

By March 4, 2020 March 19th, 2020 No Comments

Investing and trading are two mutually exclusive things. When you are trading not investing because you’re simply hoping there that someone is going to pay you a higher price for that share in the near future. Usually, these swing traders or these day traders will typically try to enter and exit the same stock multiple times in the same day.

They’re looking to optimize the volatility of a stock and kind of enter at the bottom and sell at the top. That’s great if you really know what you’re doing and if you have a ton of experience with that, and you’re able to withstand volatility in your portfolio. However, for 99.9% of people, it makes no sense. It’s not what you should be doing. You should actually be focused on investing.

When you invest in a stock or a company, you own those shares. You’re sitting right next to the CEO, the board members and the entire public that owns these companies. You own those shares on the same terms and conditions as the CEO, the board members and whoever else owns this stock and are benefiting in the exact same way as they are.

That means you’re getting a dividend from it. You get any growth, and you get to participate in the voting if that interests you. But as an investor, you own that company. You’re a shareholder of that company.

Typically you want to have a company that’s going to have a strong cashflow, and when you invest in a company that generates cashflow every single month or every single quarter or every single year, you’re investing because what you hope is that next the profit or the cashflow being generated from that company will be higher to get growth out of the value of your stock.

When you’re day trading or swing trading, that’s not what you’re hoping for. You don’t care about capital; you’re looking to optimize the volatility by buying at the bottom and selling at the top of that stock on the same day.

It can be very risky. There’s a crash because I’ve seen it, I don’t know how many times people get wiped out because they’ve only experienced positive patterns and when they see a dramatically negative pattern, they’re not able to withstand it, they’re not able to handle it. I’ll tell you right now, very few of you should be day trading. It’s something that most people don’t get.

Again, you’re investing, you’re building a portfolio. Whenever we invest for people, we think tax efficiency, and we think cashflow. We think about what the risk tolerance is and how get the best risk adjusted returns for our clients, for the volatility that we’re willing to take in your portfolio.

What kind of returns can we generate with that volatility? Then we try to optimize that. That is the true definition of investing.

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