On one of the forums I read and sometimes contribute to a young market professional posted an inquiry about getting in to trading in his own right. This sort of thing, of course, happens quite a bit. I was an exception as I had been trading well before I took my first finance class in college. Most young people really discover the markets once they get in to the work force. It’s not too hard to get hooked when you’re in the middle of it all.
The thing that caught my attention in this particular case was his use of the term “investing”. He commented that he was more of an investor in as much as he really didn’t want to scalp the markets, but rather be more of a swing trader. I’m sure you are already seeing the contradiction there. There’s nothing, after all, in the term “swing trading” that implies investing, at least not in the way most of us would probably think of the term.
Now of course I could start here a lengthy discussion of the difference between trading and investing. That’s not my intention, though. (If you’d like to read some of my thoughts on the subject, check out my Trading vs. Investing article)
I inquired with the young poster as to his use of the term “investing” in relation to his plan of action for trading (stocks). His response was that he realized that what he’s contemplating does indeed put him in to the trading arena. The reason he made use of the investing designation was because he is going to favor fundamental analysis, something which he apparently has been trained in through his job. His objective is to find undervalued stocks.
I have serious questions as to his ability to effectively swing trade in this fashion without also employing technical analysis for timing. Undervalued stocks can stay that way for very long periods of time, after all. His ideas bring up and interesting question, though.
Would the use of fundamental analysis as he is planning on using it – to identify misvalued securities – be considered investing even though the time frame in question is shorter than what most would consider an investment horizon?
A lot of people equate investing to value. It might be a bit of stretch to call it investing given that this guy wants to take positions with holding periods of days to weeks, but if it’s based on a value assessment, it could still be considered investing by some definitions. There’s nothing to say that an investment must be held for a certain period of time.
If he buys XYZ at what he considers an undervalued price and sells it at value or better, does that count as an investment even if it’s only a 1 week position? I’d love to hear your thoughts.
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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
** See John’s full bio.
