Are you a trader or investor?
I started out as a trader. In the ‘80s I bought and sold Treasury Notes and Bonds—as well as futures and options—almost every day for a mid-sized bank. I used technical and fundamental analysis, subscribed to charting services, and practically lived on my phone. Trading was a tonic that got into my blood.
I moved on to dealing foreign exchange overseas for a big bank. We called it trading, but we were there to provide currency and hedging products to international businesses that needed to move cash from one country to another. We also speculated on currency movements, both in major currencies and in small, exotic denominations.
Finally, I became an investor, managing money market portfolios, bonds, and stocks. Trading and investing are very different disciplines. It’s not just that trading is short-term while investing is long-term, or traders focus on price swings while investors look at total return, or that traders tend to be concentrated while investors are diversified. No, the biggest difference is internal.
Trading starts by looking at the market—what its character is, whether it’s trending or cyclical, stable or flighty, and so on. Investors start by looking at themselves—what are their needs and limitations, objectives and constraints. Traders start by looking outside, at what opportunities are available; investors look inside, examining what they want and what their restrictions might be.
Trading and investing are different mind-sets. Each can learn from the other, but don’t confuse them. Trading and investing can both be profitable, but only if they understand what they want and how to get it.
Douglas R. Tengdin, CFA
Chief Investment Officer
Leave a comment if you have any questions—I read them all!