What’s the Difference Between an Investor and a Trader?
When I write, I often think that the world of finance is divided into two camps. (Maybe three.)
There are investors and traders. (I also think the latter category can be divided into another camp of “speculators.”)
Are these actually different and distinct groups?
I’ll list some of the key differences between investors and traders. But then I’d like to see if, just like Donnie and Marie were a little bit country and a little bit rock and roll, that we might be a little bit of each group.
Let’s start with traders first. Traders are:
- Short term
- Active
- Reactive
- Temporary owners
- Risk tolerant
Investors are usually
- Long-term
- Passive
- Patient
- Owner
- Risk averse
It’s important to note that I’m not trying to favor one group over the other.
This all seems pretty cut and dried. People can be classified in different classes of investment styles. But, I’d bet if we look into our own portfolios, you’ll find that your approach to different assets blend these two disciplines.
We might hold some stocks forever. We might jump in and out of other stocks. We might have a little corner of the investment portfolio that’s designed to see high returns from high risk instruments. And we might have a CD that we’ve held onto since we were in high school.
The key is learning how to do both well. Note the best practices of long-term investors, like Warren Buffet and check out strategies by traders like George Soros.
If you’re an investor, study trading techniques, just as you practice investing discipline. And traders can learn how to find good companies they want to hold onto.
Related posts:
- What is the Difference Between an Investor and a Trader?
- The Trader’s Ego
- Investor John Templeton Dead at 95
- Buy And Hold, Trend Following And Automated Trading
- How To Know If Automated Trading Is For You
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I'm George Ulmer. Matt and I started this blog and launched the Online Investing AI business. Our goal is to develop the technology to allow anyone to retire after working for 10 years.
is one of my favorite financial books of all time. It's an allegory about a guy who has a terrible job, and how he overcomes challenges to achieve his dreams.
I think it’s possible to be both, you can have the bulk of your money in the investor/patient capital category, and a minority on the trader/speculator side.
But not all–and probably not even most–are suited to be traders. And some investors are speculators, playing the buy-and-hope game.
Sometimes it seems as if market participation is ten feet high, while market understanding as barely a foot high.
I am gradually moving from a trader to an investor. I have definitely learned to consider myself an owner. This has kept me from making some bad investments latey.
Thanks Hope to Prosper–
I think the ultimate goal would be to balance being an investor with being a trader. I just don’t know anyone who has achieved that.