Investor or Trader: Know What You Are

The first thing any person who is active on the financial markets should ask him-/herself is the following:

Am I an investor or a trader?

Why It Matters

When it comes to the stock market, understanding whether you're a trader or an investor isn't just a minor detail—it's the foundation of your entire strategy. Both traders and investors aim to grow their wealth, but they approach the market in very different ways. Determining and realising what you are is fundamental, because clarity from within is always needed for taking rational and consistent decisions.

In Short, The Key Differences

Category	The Investor	The Trader
Goal	Wealth accumulation through long-term value creation and growth.	Generating profits exploiting short-term price movements.
Time Horizon	Long-term (years, decades).	Short-term (seconds, minutes, hours, days, weeks, months).
Buy/Sell Based On..	Value & Price	Price
Decision Criteria	Focuses on intrinsic value, economic fundamentals, and long-term growth potential.	Relies heavily on market sentiment, price patterns, and momentum.
Involvement Level	Less frequent, periodic monitoring.	High involvement, constant monitoring
Market Participation	Participates in all market cycles, focusing on long-term trends and economic cycles.	Participates primarily during high liquidity periods; may avoid trading during certain market conditions.
Market Philosophy	Believes in the market's ability to reflect true value over time (efficient market hypothesis).	Often exploits market inefficiencies and short-term anomalies.
Exit Strategy	Based on long-term goals, such as retirement or funding significant life events.	Predefined by technical targets, stop losses, or market conditions; flexible and dynamic.
Behavior in Market Crashes	More likely to hold or buy more, seeing market downturns as opportunities to acquire undervalued assets.	More likely to sell quickly or short the market to profit from the decline.

The Trader - It's All About Timing

In general, a trader lives and breathe on the ability to identify short-term patterns and movements, in essence simply being great at timing the market.

A trader's best friend is volatility!

Great trading strategies can undoubtedly yield phenomenal results for those that are able to exploit market inefficiencies and short-term price movements in a systematic manner, especially for those who have automated these trading behaviours.

For non-automated trading, where the emotion plays an impact, there are more human risks involved.

The pressure to time trades perfectly can lead to stress and impulsive decisions, particularly in highly volatile markets. Overtrading or hesitating at crucial moments can result from the anxiety of getting the timing wrong. Moreover, the fear of missing out (FOMO) can push traders to enter or exit trades at inopportune times, driven more by emotion than rational analysis.

In essence, while timing is a cornerstone of trading strategy, it is also a double-edged sword. The potential rewards are immense for those who get it right, but the risks are equally significant, requiring traders to have not just skill and knowledge, but also discipline and the ability to manage stress.

The Investor - Seeking Great, Value-Appreciating Businesses

An investor analyze, select and invest in shares of companies and businesses. If you deem the value of a company will substantively increase in the future, at a risk-reward ratio you're satisfied with, then you should invest in this company. Whenever price is below value this is theoretically a buy signal. Be fearful when others are greedy, and greedy when others are fearful.

An investor doesn't place a lot of emphasis on market timing, but trying to minimizing the effect of it is important so that the most important parameter when investing is simply selecting great companies. Future strategies and ways of going about minimizing timing risk will be covered in a future note.

So, what are you?

To put it simply, one buy and sell financial instruments (of course including stocks), the other buy and sell shares of companies. These are two fundamentally different ways of participating in the financial markets. Your strategy, at the most basic level, should derive from the answer to this question. For purpose of external clarity going forward, I'm most certainly an investor. This is the perspective you should have in mind while reading my notes because it is the underlying foundation of my perspectives and outlook.

By J