TT’s Trading Concept #1: Investing vs Trading

As this is my 1st trading concept post I wanted to discuss something simple and that is the difference between investing and trading. Here is my take on the two definitions.

Investing, to me, is about buying something with the expectation of generating profit out of it. This could be a company, a factory or even a lemonade stall. There is usually some expectation of increase in value over time of your investment.

Trading on the other hand is just about “buy low and sell high” or “sell high first and buy back low” and there is not (as much)1 concern with regards to future profit and real value. All I am concerned about is whether someone else is willing to buy whatever it is you are trading off you at a better price. Good example of trading would be during bubbles such as tulip mania or the dot-com boom in which people were just trying to make money with little regards to the actual valuation of these objects/assets.

Another unique difference is a trader would “short” assets because they believe they can sell it now and buy it back at a lower price. This is all about making money through changes in price.

So are you an investor or a trader?

Cliff note: Investing is about value. Trading is about price.

1 I am aware that price could be a function of value but lets just keep things simple here.

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