TOPICS: Trader vs. Investor. Buy and Hold is a Strategy Whose Time has Come and Gone. The Semester Investor.
Let’s explore whether you are an investor or a trader. There is a world of difference between the two. An investor would be considered a “right-term” person. A trader is someone who is using the stock market for a more immediate reward. In real estate I purchased some rental properties to hold for four to ten years. But I made bigger money, especially at the beginning of my career, in short-term plays. By that I mean, buying a house on Monday and fixing it by Tuesday or Wednesday, putting it up for sell on Thursday, and hopefully closing by the next Monday or Tuesday. I became very good at this by only purchasing properties that I could turn over quickly.
In the stock market there is a similar method. You look for short-term trades to generate income. This is a business type income. I have often said on radio and TV shows that we need to treat the stock market like a business. If you do so, you will be considered a “trader.” One side benefit is that all the expenses of trading would be expensed out or tax deductible if you meet the requirements. Another potential side benefit would be that you would hopefully make enough money with short-term trades (meaning three-day to three-month trades) to pay your bills each month and have enough to take home as well as enough to put into slightly longer “right-term” trades, or move away from the market to real estate, oil, or other investments.
Yes, you can be an investor and a trader at the same time. You could dedicate part of your money to each enterprise. One is a very active enterprise, which requires an active involvement; the other requires a passive involvement. Nevertheless, each one requires its own level of expertise; each type requires a certain amount of homework and dedication to know the investments you are holding for each purpose.
“Buy and Hold” can work if given 30 years or more, but I feel that there is such a better way. Yes, position trading is more work, but the results are definitely worth the effort. The hold period must be appropriate. It must fit your risk tolerance, your own particular stage in life and your own cash flow needs. You can get your money to work harder as you learn to deploy money the way you would in any other business. Trading is a business—a business that can support your family. All you have to do is change your expectation level and learn how to “work” your money better. The past correction in the marketplace, seen as risky by some, provided great opportunities for others. It provides investment opportunities, as well as trading opportunities.
These two strategies are symbiotic. As you develop skills as a trader you will learn to choose better investments. Conversely, the study and search for good investments will net many trading opportunities. To get good at both methods we need to find, study, practice and work each formula.