The diference between a Stock Investor & a Trader...

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holycow

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Post Number: 577
Registered: 08-2004

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Monday, December 13, 2004 - 10:39 am:

IC is a TA site so they say. The FA people do not even have a thread here that allows them to express their view freely even though I know there are many stock traders who "trade" through FA approach. There is a stereotyped view of FA people here - if you like FA then you are an investor.

The corollary seems to be just as prevalent - if you like TA then you are a trader.

... so, can some one tell me what is the difference between a stock investor and a stock trader?

If the "conventional" wisdom of a stock investor is one who buys stock base on valuation and practices "buy and hold" for as long as the value and financial fundamentals of the company are intact; then I am asking what is a stock trader?

... just what/who the hell is a stock trader? Because it seems they are also practicing "buy and hold" even when the market is showing sign of tear. Sure it may just recover and move on to a higher level; but at this moment it can go either way and no one can tell - but, is there a need for one to be so rigidly holding on his/her view?

Anyway, this just an observation. If the market turns today and shows me by EOD that it has every intention of moving higher, I will be in it. I am thinking short term, but I am still thinking and acting as a trader. If the market shows me by next week, it has legs and will move to 6000, yes, I will be in the market too, and I will be going long term. I will buy and hold!

... and I am still thinking and acting as a trader!

And yes, can the investor in IC forum stand up and be counted please? I believe you are in good company here.

HC

"... if you've got a chart, I have an opinion!"

quinent

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Post Number: 151
Registered: 12-2003

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Monday, December 13, 2004 - 10:47 am:

hc,

I think the difference is purely the length that the person tends to hold stock... ie investor (in my eyes) holds long term, trader holds short term..

Nothing to do with FA or TA...

Most people probably do both 'investing' and 'trading' at the same time...

Cheers,

Brendan

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starboard_tack

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Monday, December 13, 2004 - 12:50 pm:

HC,

For a short answer I agree with Quinet. For a longer answer ...

As with anything in life, there are more than just 2 schools of thought. When it comes to defining an investor we have to consider that here are several different styles.

Here are some of my thoughts ---

One type, lets call them Bottom Drawer Investors (BDI's), will buy, put in the bottom drawer, and leave. BDI's wil not use TA, and often won't use FA directly, but rather their "advisor". They will tend to hold on all the way down, using reasonings like "I can't sell now, it owes me too much - I'll wait till it comes back up". How many people have you spoken to in the last year who are still whinging that their portfolio is down?? You won't see BDI's on IC.

Another type is the Active Investors (AI). AI's realize that you can't rely on "advisors". It is often thier retirement income that they are managing. They can use TA, FA, or both. Their time-frame is usually, but not always, longer than traders. They will ride the uptrends, but exit positions when the trend is over. What they do on the down run is probably a whole new thread's worth - stand aside in cash/ interest rate securities, move to "defensive" stocks (whatever they may be?), invest in real estate, sell covered calls, etc etc. If you just ride the longer up trends and stand aside for the rest life can get pretty boring. So they often tend to mix in Trading techniques as well. (e.g. range trading stocks like AWC etc.) I think that there are lots of AI's on IC.

I'm sure that there are many other variations as well.

I will stand up and be counted. I am trying to be an Active Investor. I have been learning for over 2 years now. I ran an interesting test the other day. I am still on the mailing list of an advisor - I have tried to get them to take me off the list - but to no avail. I had a look back at their recommendations for the last year or so. They haven't sent one buy recommendation(!), and the only sell recommendation was RIN @ 6.50 (now at 10.25 as I write). I am WAY ahead of where they would have me now, and that is despite learning a few costly lessons on the way. Don't get me wrong - I am not saying that I have done very well - I am just pointing out how badly I would have done if I had stuck with the "experts". Hopefully I am going to be much better prepared when the bears return, and will be able to preserve my capital as well as generating a retirement income.

Anyway, thanks for providing some interesting views and discussions.

Regards,
Starb'd

(Message edited by starboard_tack on December 13, 2004)

spider

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Post Number: 1855
Registered: 10-2002

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Monday, December 13, 2004 - 02:53 pm:

spider is a trader.
Now there's a surprise!

Before I get going, let me say that I love investors, almost as much as I love people who trade on FA.
They create the patterns that feeds my lifestyle.
Without them my job would be a lot harder, and it is hard enough as it is.

I'm assuming that 'the most blessed of bovines' question is posed to generate discussion.

It is reasonably easy to pick the traders from the investors.
You just have to read the words that they write.
Language used is an excellent indicator as to the inner workings of the mind.

Investors (not necessarily the 'active 'kind) tend to be eternal optimists.
They live on hope, even when their shares are in free fall.
They only see the upward movements of a share, they are fearful at retracements, and see bear markets as something to be frightened of.
They believe what they read in the press, and actively seek out this information.

Traders are generally not fussed whether the market is going up or down, but they are happiest when it is consistently doing either.
Traders have a variety of methods for extracting money from the market, depending on the prevailing conditions.
You wont hear them say things like "taking some off the table", or "no one ever went broke taking a profit", " or "leaving some for the next bloke", they don't trust anyones judgement except their own.
They know that if they stick to their trading plan they WILL make money (no 'hope' involved)

This is an important distinction:- traders have a plan, and investors don't.
Traders always know what their exit will look like, investors don't even think about an exit strategy.

If you don't see 'shorting' the market as a strategy then you are not a trader.

It seems to me that 'active investors' are traders with a 'small t'.
They are using traders strategies to improve the return from their investments, more power to them.

My only hope is that not too many people discover this site and adopt the ideas that you find here as it will make my job that much harder.

As long as 'Shares' magazine flies of the shelves I know that I am safe, for the time being.

I also know that I have human nature working for me.

Example:- there's a bloke that I run into occasionally, he is into shares but his approach is to get to know the people that run the companies!
He is on a first name basis with most of the managing directors in the sector of our market , that he is interested in.

The thing is, from time to time, he make good returns, partly because the sector he is interested in is quite volitile, and is positively impacted by bull runs.

The other night we ran into each other and the inevitable discussion ensued.
He mentioned seven shares that he saw as potential rockets.
I wrote them down, and when I got home I pulled up the charts.

Results of chart analysis:-
of the seven he mentioned two were in a sustained downtrend and had just gone through a false breakout, three were excellent 'short' candidates, and two were potential breakouts.

Now this is a bloke that 'rubs shoulders' with the heavies in this sector.
And five of the seven shares that he recommended were actually shorts.

This bloke has been doing this type of activity for a long time, and there is no way that you could convince him that there is a better way, and as much and all as I like this guy, I don't mind if he does not change, as he will be on the long side of the shares that I will be shorting, and his behaviour will help me to make a successful trade.

I know that this sounds hard, but it is not me that is forcing him to be in the market, but I am quite happy to take his money, as he would be just as happy to take mine.

It is a terrible thing to be partially successful at this game because it prolongs the agony.
It would be better to just crash out, and be forced to re evaluate what you have been doing, and start again, but that is a discussion for another day.

spider.

.

"One thing you will learn as a trader is that the mental resources you use to get what you want in your everyday life will not work in the trading environment"

"Unlike other social environments, the trading arena has many characteristics requiring a very high degree of self-control and self trust from the trader who intends to function successfully within it. However, many of us lack this self-control because as children we learned to function in a structured environment where our behaviour was controlled by someone more powerful than ourselves, whose purpose was to manipulate our behaviour to conform to society's expectations."
Mark Douglas.
'The Disciplined Trader.'

holycow

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Monday, December 13, 2004 - 03:17 pm:

Guys,

Thanks for the response. Trust me I am reading all your views and am learning... there is always new thing to learn everyday if you are in the market.

Cheers and have a good day everyone.

HC

"... if you've got a chart, I have an opinion!"

spider

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Monday, December 13, 2004 - 03:20 pm:

Sometimes, when I take a break from trading, I go out side and sit down by the creek. This bloke sits in a tree by the creek, sometimes he waits for hours, just waiting for something juicy to break cover.
No matter how well disguised his prey might be, he has the patience to wait for it to move, then he pounces.
He does not have to hope, he KNOWS that it will happen, as long as he has a plan and the patience to carry it out.

Whenever I'm having a bad run, I go and watch this guy.

spider.

.

holycow

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Post Number: 584
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Monday, December 13, 2004 - 03:33 pm:

Spider,

Not sure if you are giving me a hint... thanks regardless. I am a bit thick as usual. Without sounding too defensive, I think I am doing fine... like I am almost in cash. On the patience bit, I am not so sure though.

Cheers and good trading.

ps: I am writing all these because I am "frustrated", not with myself, not with the market, but...

HC

"... if you've got a chart, I have an opinion!"

starboard_tack

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Post Number: 198
Registered: 04-2003

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Monday, December 13, 2004 - 04:08 pm:

Greetings Spider,

Your response highlighted why I went to the trouble of separating Active Investors from Investors. We invest to a plan. Like you, we know pretty well what our exits will look like. Although I would be delighted if my entries resulted in long term holds (> 1 year - reduces cap gains tax), if the plan says exit, I exit (even if it is to keep losses short). In fact, "Spider's Neckline" is an important part of my plan!

The difference possibly between Active Investors and Traders might be the entry. I (usually) would be taking a more conservative entry after the trend has been established. (Although, some of my better performers have come from using Blind Freddie entries, and I am always trying to improve my entry techniques). But I suspect that the exits are fairly similar (when the emotions are kept under control!).

Shorting is not ruled out either. It was one of the many techniques that I was suggesting could come under another thread.

I suspect that the label we put on our style may be influenced by whether we see ourselves as earning an income, or managing our life savings to live well in retirement. There probably is no difference - its just the mindset and language that we bring with us.

It is interesting to note that there has been no mention of dividends in this discussion!

Hope your knee is much better,
Starb'd

smallworld

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Monday, December 13, 2004 - 04:15 pm:

Quiet afternoon and I have no creek

.
Trader or Investor - is just a way a person thinks of his possessions. An investor thinks he part owns the company he has shares in. A trader think of his stocks as merchandise. Speculators are somewhere in between - They invest in assets that they think have much higher potential than their current values and when the values reach their potential, they sell their investment like merchandise. So there must be investors that have a shorter time frame than traders.

(Message edited by smallworld on December 13, 2004)

peterloh

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Monday, December 13, 2004 - 04:41 pm:

INVESTOR OR TRADER?

The classification is dependent on where you sit.I don't diversify my trade to reduce the risks, as investors do ,I take a fairly big position on 8 to 10 shares . I don't trade as actively as many in the forums, in fact my trades time frame becomes longer as I learned from experience but I have cut losses on several occasions as it went against me.The return from the least profitable trade would be more than enough to pay for all the losses of all the other trades.

My approach is different from the majority of the traders in the sense I adopt a bottom line method logy in my approach. You can call me an investor in the sense that if I trade/invest I do take into consideration of franking credits and capital gain. Sometimes I will hold on a bit longer if it is near the 12 months period because I understand how hard I have to work to made up the 50% discount on CGT incentive.My returns is not realised capital alone but the sum of dividends and capital growth.

I do not maintain a bottom drawer for two reasons. If the shares do not do well now, it is likely they will not perform any better in the near future. If I need cash other than when the trend changes, I always sell my least profitable trade first and keep my most profitable trades.I always have to plan my taxation strategy from the beginning of the year and one way is to cut unprofitable trade as I go along.

Taxation planning is one of my major consideration in the way that I trade. I understand besides sentiment what moves the share price by understanding the indexation concept and how the share market works.I try to understand how the institutions construct their portfolio and how they invest because I do believe they have a big influence on the movement of the share price.

I understand the concept of buying high and selling higher as I like the concept of buying low and selling high as my time frame is over a longer period, as the other is more suitable for a shorter time frame.A longer time frame does allow a bit more flexibility than one with a shorter period.

Although I have always say this is my hobby, because I enjoy what I do,I must said this little hobby of mine will probably take up more of my time than some who is a full time professional in the job.In trading I have to adopt a micro approach as it is on a different level on companies alone, whereas in my professional life, the approach is more on a macro basis.So I try to apply my macro knowledge on to my "micro" trading system.Understanding the type of mangers buying what shares in the market also help me to understand what type of shares they are currently being classified and the growth prospect of these shares. You guess it I am a fundamentalist with a knowledge of technical approach.With the size of my trade, I cannot afford not to understand where I put my money. Yes I am an old fashion trader without knowing how to make money doing the shorts,it is more of a technical disability because of my deficient skills on the computer.However I can say one thing, despite not having short any stocks in the last 3 years, I have return a positive return in the last 3 years because of sectors selections. I must admit that without my knowledge of technical analysis this wouldn't have been possible.

With the adoption of Snifter's big moves on trends,Spider's wisdom on ducks in the selection of shares,my understanding of how indexation works in the XAO, the favourites of some fundies, company's management and the effects of buybacks, my understanding of the taxation systems,I am able to design a portfolio on the shares I trade.It is not without risk trying to pick from the initial break out, but then the experimentation is on a smaller amount, and by the time this is increased to the desired size, I would have an understanding of the share pretty well.

PL

-------------------------------------------------
Disclaimer: Please note that comments made in this column is mainly for the interpretation of charts in technical analysis. It is not made in my professional capacity and should not be taken as advice.In my professional capacity I am only allowed to give advice on certain managed funds authorised by my license dealer.Any share discuss is for general interest and should not be relied on to make an investment decision.It is likely that I may own the shares that we discussed as a trade or as an investment. Please consult your stock broker or financial adviser in regard to your personal situation.

oldwombat

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Post Number: 219
Registered: 04-2004

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Monday, December 13, 2004 - 05:04 pm:

Just so's I get you right Spider, you are saying you go down to the local watering hole and find out what the local Jackass is doing and then follow his lead???!!!!!!