Trader or Investor?

Which one do you consider yourself to be? They both may involve the stock market and individual stocksĀ  (not a big fan of Mutual Funds), but they have two very different mindsets. Although there shades of gray like with investors occasionally making trades and traders occasionally making investments, the hearts of the two methods could not be more different on the surface. Each one has both a good and bad side so choosing which path to take is definitely not easy.

Investing is more of a long term approach that involves looking at the fundamentals of companies and their long term prospects. Investors who are satisfied with a company that they believe will have a great future years away have more of a set-it-and-forget-it type mentality. The company may have short term bumps, the patient investors are will to wait those out. If the investment is in a rock solid company with growth in a thriving industry, they will likely on gain from this investment in time. They are not likely to lose money on the investment due to selling all their shares after a sell-off because of a bad earnings report or two. For example, there have been stories for decades of individuals investing in future giants like Walmart, Microsoft, and Apple. Anybody who held those stocks close to when they started made fortunes.

The flip-side of the investor is the trader. The trader only cares about short term swings in prices instead of the company’s long term fundamentals. Price charts are the most beloved of tools for the trader. He or she combs over trends in the prices of the stock to try to predict how the stock price may react in the future. Unlike investing, trading can cost you your principal investment or at least a chunk of it very quick. Prices do not always go up and these swings are what traders ply their abilities on. It takes a sharp mind, a strong stomach, and a great deal of timely information to be a successful trader. One wrong bet could be very expensive and could even mean financial ruin. Of course, successful traders can also make a lot of money quickly. See where the strong stomach comes in?

The question remains: Would you rather trade stocks or invest in companies? If you are not sure of your answer, there is a third option: use a hybrid of the two. Allow you have to be very selective about what you combine from the two, it can be a successful combination. For instance, you could analyze the fundamentals of a company to decide whether or not you should invest and then look at price charts to determine when would possibly be the best time to buy.

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