Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19
Central Banks Move To Keep The Global Markets Party Rolling – Part III - 14th Aug 19
You Have to Buy Bonds Even When Interest Rates Are Low - 14th Aug 19
Gold Near Term Risk is Increasing - 14th Aug 19
Installment Loans vs Personal Bank Loans - 14th Aug 19
ROCHE - RHHBY Life Extension Pharma Stocks Investing - 14th Aug 19
Gold Bulls Must Love the Hong Kong Protests - 14th Aug 19
Gold, Markets and Invasive Species - 14th Aug 19
Cannabis Stocks With Millennial Appeal - 14th Aug 19
August 19 (Crazy Ivan) Stock Market Event Only A Few Days Away - 13th Aug 19
This is the real move in gold and silver… it’s going to be multiyear - 13th Aug 19
Global Central Banks Kick Can Down The Road Again - 13th Aug 19
US Dollar Finally the Achillles Heel - 13th Aug 19
Financial Success Formula Failure - 13th Aug 19
How to Test Your Car Alternator with a Multimeter - 13th Aug 19
London Under Attack! Victoria Embankment Gardens Statues and Monuments - 13th Aug 19
More Stock Market Weakness Ahead - 12th Aug 19
Global Central Banks Move To Keep The Party Rolling Onward - 12th Aug 19
All Eyes On Copper - 12th Aug 19
History of Yield Curve Inversions and Gold - 12th Aug 19
Precious Metals Soar on Falling Yields, Currency Turmoil - 12th Aug 19
Why GraphQL? The Benefits Explained - 12th Aug 19
Is the Stock Market Making a V-shaped Recovery? - 11th Aug 19
Precious Metals and Stocks VIX Are About To Pull A “Crazy Ivan” - 11th Aug 19
Social Media Civil War - 11th Aug 19
Gold and the Bond Yield Continuum - 11th Aug 19
Traders: Which Markets Should You Trade? - 11th Aug 19
US Corporate Debt Is at Risk of a Flash Crash - 10th Aug 19
EURODOLLAR futures above 2016 highs: FED to cut over 100 bps quickly - 10th Aug 19
Market’s flight-to-safety: Should You Buy Stocks Now? - 10th Aug 19
The Cold, Hard Math Tells Netflix Stock Could Crash 70% - 10th Aug 19
Our Custom Index Charts Suggest Stock Markets Are In For A Wild Ride - 9th Aug 19
Bitcoin Price Triggers Ahead - 9th Aug 19
Walmart Is Coming for Amazon - 9th Aug 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

The Difference Between What Traders and Investors Should Do Now

Stock-Markets / Stock Markets 2015 Aug 27, 2015 - 05:30 PM GMT

By: Investment_U


Alexander Green writes:Over the last couple of weeks, the market has rallied, plunged and rallied again.

Should you buy into this craziness right now?  That depends on whether you consider yourself a trader or an investor.

There are a lot of opportunities out there right now for medium- to long-term investors. But it looks dicier for short-term traders.

Let’s start by defining our terms.

An investor strives to earn returns that are measured in years (or decades) and generally ignores short-term fluctuations. A trader, on the other hand, measures his returns in weeks or months. He doesn’t ignore short-term fluctuations. He seeks to capitalize on them.

(A speculator, in my view, is someone seeking high returns but is willing to take on a lot more risk - including complete loss of principal - in order to earn them. I would put option traders, penny stock buyers and venture capital investors into this category.)“Prices fluctuate more than values. This is the key point. The liquidation or ongoing business value of a company doesn’t change nearly as rapidly as its daily share price, especially in times like these.”

How can the same stock - at the same time - be a great buy for an investor but a poor one for a trader?

Look at it this way. Imagine that you are trying to swim across a bay. You have a choice.  You can swim when the tide is against you or you can wait and swim when the tide is with you.

Obviously, it would be easier (and safer) to swim with the tide.

Right now there is no tide in the market, only rip currents. Sophisticated traders - like experienced swimmers - know this is no time to jump in.

Sure, you could get lucky and buy something just before it rallies. But you could also see it brutalized a few hours (or a few minutes) later.

Investors, on the other hand, have the luxury of time. Since they are investing to meet financial goals three, five or 10 years out (or longer), it really doesn’t matter whether the market - or the stock they just bought - plunges.

Yes, there is the psychological regret of knowing that you bought a stock at $32 that is $24 two days later. But if you truly bought a great company, time heals wounds like this. A few years from now, it probably won’t matter.

Prices fluctuate more than values. This is the key point. The liquidation or ongoing business value of a company doesn’t change nearly as rapidly as its daily share price, especially in times like these.

Great stock pickers follow a similar formula. It doesn’t matter whether they use a growth methodology or a value methodology. They make an independent calculation of what a company is worth based on sales, earnings, cash flow, dividends and prospective profits. Then they check the market price.

If the stock is trading above their valuation, they give it a miss. If it is trading at a substantial discount to this valuation, they generally buy.

It makes absolutely no difference whether the market’s next move is higher or lower because they aren’t looking to sell it short-term anyway.

A long-term investor buys based on known facts and reasonable projections. If the market acts silly in the near term, he may have an opportunity to buy more at an even better price.

He averages down to lower his cost basis. And if he’s right, his eventual gains will be bigger still.

Why can’t a trader do this? Why doesn’t he jump in and then average down?

The difference is the time horizon. If you’re a short-term trader who is looking to lock in a fast profit and then move on to something else - presumably something better - you don’t want to put yourself in a hole where your short-term losses mount.

The short-term trader needs to wait until he can swim with the tide again. Or at least until the rip currents are gone.

When market participants become emotional - as they have over the last couple of weeks - prices get distorted. Sometimes wildly so.

That’s a green light for investors... but a flashing yellow one for traders.

Good investing,


Editorial Note: In these markets, the idea of closing a big triple-digit gain may seem impossible. But as Alex explained above, it’s that sort of thinking that separates traders from investors. If you’re willing to adopt a long-term view, he can show you a simple and direct route to achieving true financial liberty. All that’s required on your end is a few minutes a day. With that, Alex can teach you how to build a multimillion-dollar portfolio starting from zero. Interested? Click here to learn more.


Copyright © 1999 - 2015 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email:

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules