Comments on: The Difference Between Trading and Investing http://theessentialsoftrading.com/Blog/index.php/2008/03/05/the-difference-between-trading-and-investing/ Information and resources for those looking to learn about trading and the markets Tue, 22 May 2012 13:19:03 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: Book Review: The Motley Fool Million Dollar Portfolio | The Essentials of Trading http://theessentialsoftrading.com/Blog/index.php/2008/03/05/the-difference-between-trading-and-investing/#comment-18394 Book Review: The Motley Fool Million Dollar Portfolio | The Essentials of Trading Wed, 22 Jun 2011 13:44:41 +0000 http://www.theessentialsoftrading.com/Blog/index.php/2008/03/05/the-difference-between-trading-and-investing/#comment-18394 [...] As such, the subject of investing in the stock market doesn’t really appeal to many (see The Difference Between Trading and Investing). That said, however, there are those (like me) who do sometimes look for investing opportunties. [...] [...] As such, the subject of investing in the stock market doesn’t really appeal to many (see The Difference Between Trading and Investing). That said, however, there are those (like me) who do sometimes look for investing opportunties. [...]

]]> By: The Curious Investor » Blog Archive » Trading versus Investing http://theessentialsoftrading.com/Blog/index.php/2008/03/05/the-difference-between-trading-and-investing/#comment-11929 The Curious Investor » Blog Archive » Trading versus Investing Fri, 14 Mar 2008 18:23:14 +0000 http://www.theessentialsoftrading.com/Blog/index.php/2008/03/05/the-difference-between-trading-and-investing/#comment-11929 [...] It would seem that this is a pretty current topic in the blogosphere as The Peridot Capitalist and The Essentials of Trading blogs have been having a bit of a back and forth on this topic lately. Their two posts were both [...] [...] It would seem that this is a pretty current topic in the blogosphere as The Peridot Capitalist and The Essentials of Trading blogs have been having a bit of a back and forth on this topic lately. Their two posts were both [...]

]]> By: Bill aka NO DooDahs! http://theessentialsoftrading.com/Blog/index.php/2008/03/05/the-difference-between-trading-and-investing/#comment-11866 Bill aka NO DooDahs! Thu, 06 Mar 2008 22:29:34 +0000 http://www.theessentialsoftrading.com/Blog/index.php/2008/03/05/the-difference-between-trading-and-investing/#comment-11866 @ n2: judge by intent. Did they build the business for the purpose of generating a stream of profits that they would live by? That's clear-cut investing. Did they build the business for the purpose of paying their salary and building equity that they would sell and retire with? Less clear-cut, but as a one-off, I would call it an investment. Are they in the business of building businesses to sell? Did they build this one with the express idea that they would sell it (for some other reason than a "life change" like retirement? I would call that trading. @ n2: judge by intent.

Did they build the business for the purpose of generating a stream of profits that they would live by? That’s clear-cut investing.

Did they build the business for the purpose of paying their salary and building equity that they would sell and retire with? Less clear-cut, but as a one-off, I would call it an investment.

Are they in the business of building businesses to sell? Did they build this one with the express idea that they would sell it (for some other reason than a “life change” like retirement? I would call that trading.

]]> By: Chad Brand http://theessentialsoftrading.com/Blog/index.php/2008/03/05/the-difference-between-trading-and-investing/#comment-11857 Chad Brand Thu, 06 Mar 2008 15:23:26 +0000 http://www.theessentialsoftrading.com/Blog/index.php/2008/03/05/the-difference-between-trading-and-investing/#comment-11857 Well, I won't keep going back and forth with you guys on this one, but as my last comment on the topic, keep in mind that common stock affords its owners a stream of cash flows generated by the company, divided up by proportional ownership. Passive shareholders give the choice of how to allocate shareholder capital to the management team and the board. They can choose to pay it directly to shareholders via dividends or stock buybacks, or reinvest it back into the business if they find attractive projects. In any case, it is the shareholder's money, and very similar to a rental property owner who might keep the rental income or reinvest it by buying another property. While I disagree with these definitions (just because somebody like Kiyosaki makes up one on their own, I don't think it means finance textbooks become outdated), but even if you accept the need for a stream of income, stocks provide that to their investors, they just hire someone else to decide how to allocate their capital for them. Thanks for the discussion and take care, guys. Well, I won’t keep going back and forth with you guys on this one, but as my last comment on the topic, keep in mind that common stock affords its owners a stream of cash flows generated by the company, divided up by proportional ownership.

Passive shareholders give the choice of how to allocate shareholder capital to the management team and the board. They can choose to pay it directly to shareholders via dividends or stock buybacks, or reinvest it back into the business if they find attractive projects. In any case, it is the shareholder’s money, and very similar to a rental property owner who might keep the rental income or reinvest it by buying another property.

While I disagree with these definitions (just because somebody like Kiyosaki makes up one on their own, I don’t think it means finance textbooks become outdated), but even if you accept the need for a stream of income, stocks provide that to their investors, they just hire someone else to decide how to allocate their capital for them.

Thanks for the discussion and take care, guys.

]]> By: John http://theessentialsoftrading.com/Blog/index.php/2008/03/05/the-difference-between-trading-and-investing/#comment-11850 John Thu, 06 Mar 2008 10:14:53 +0000 http://www.theessentialsoftrading.com/Blog/index.php/2008/03/05/the-difference-between-trading-and-investing/#comment-11850 Chad - Bill included dividend paying stocks in his initial definition. The point, though, was that the stock was bought for the dividend. Capital appreciation, while a nice bonus, was not the main objective. I'm not saying that I personally subscribe to this particular differentiation when speaking in terms of participation in the financial markets, but I do understand why it is used in the broader personal finance sense. Chad – Bill included dividend paying stocks in his initial definition. The point, though, was that the stock was bought for the dividend. Capital appreciation, while a nice bonus, was not the main objective.

I’m not saying that I personally subscribe to this particular differentiation when speaking in terms of participation in the financial markets, but I do understand why it is used in the broader personal finance sense.

]]> By: n2 http://theessentialsoftrading.com/Blog/index.php/2008/03/05/the-difference-between-trading-and-investing/#comment-11847 n2 Thu, 06 Mar 2008 09:30:03 +0000 http://www.theessentialsoftrading.com/Blog/index.php/2008/03/05/the-difference-between-trading-and-investing/#comment-11847 I think Bill got it right. "Investors make money through buying a stream of income payments.” Suppose, you are an entrepreneur and you founded a new small company that is expected to fast in the next few years. The next year you sell the company to private investors. Are you trader or investor? I think Bill got it right. “Investors make money through buying a stream of income payments.” Suppose, you are an entrepreneur and you founded a new small company that is expected to fast in the next few years. The next year you sell the company to private investors. Are you trader or investor?

]]> By: Chad Brand http://theessentialsoftrading.com/Blog/index.php/2008/03/05/the-difference-between-trading-and-investing/#comment-11830 Chad Brand Thu, 06 Mar 2008 02:05:59 +0000 http://www.theessentialsoftrading.com/Blog/index.php/2008/03/05/the-difference-between-trading-and-investing/#comment-11830 An asset is simply something you own that has tangible value. Both a home and a rental property would qualify. If an investment requires an income stream without having to sell the asset, as you say, then how is the purchase of stock not an investment? If rental income qualifies, dividend income would have to as well, no? An asset is simply something you own that has tangible value. Both a home and a rental property would qualify.

If an investment requires an income stream without having to sell the asset, as you say, then how is the purchase of stock not an investment? If rental income qualifies, dividend income would have to as well, no?

]]> By: John http://theessentialsoftrading.com/Blog/index.php/2008/03/05/the-difference-between-trading-and-investing/#comment-11829 John Thu, 06 Mar 2008 01:28:19 +0000 http://www.theessentialsoftrading.com/Blog/index.php/2008/03/05/the-difference-between-trading-and-investing/#comment-11829 Chad - I think you'll find that one used quite often in personal finance. Robert Kiyosaki (Rich Dad), among others, uses a definition like that. For example, in his way of viewing things, a home is not an investment because you actually have to pump money into it and the only way you get anything out is by selling at a higher price. That makes it an asset, whereas a rental property where you receive income would be an investment. Chad – I think you’ll find that one used quite often in personal finance. Robert Kiyosaki (Rich Dad), among others, uses a definition like that. For example, in his way of viewing things, a home is not an investment because you actually have to pump money into it and the only way you get anything out is by selling at a higher price. That makes it an asset, whereas a rental property where you receive income would be an investment.

]]> By: Chad Brand http://theessentialsoftrading.com/Blog/index.php/2008/03/05/the-difference-between-trading-and-investing/#comment-11827 Chad Brand Thu, 06 Mar 2008 01:06:14 +0000 http://www.theessentialsoftrading.com/Blog/index.php/2008/03/05/the-difference-between-trading-and-investing/#comment-11827 Bill - where did you get that definition of an "investor" from? I've never heard of that before. Bill – where did you get that definition of an “investor” from? I’ve never heard of that before.

]]> By: Bill aka NO DooDahs! http://theessentialsoftrading.com/Blog/index.php/2008/03/05/the-difference-between-trading-and-investing/#comment-11820 Bill aka NO DooDahs! Wed, 05 Mar 2008 21:53:41 +0000 http://www.theessentialsoftrading.com/Blog/index.php/2008/03/05/the-difference-between-trading-and-investing/#comment-11820 Chad, here's the logic. Traders make money through buying and selling. Investors make money through buying a stream of income payments. Therefore, if your plan is to buy for capital appreciation and a later sell, then regardless of timeframe, you're a trader. Chad, here’s the logic. Traders make money through buying and selling. Investors make money through buying a stream of income payments.

Therefore, if your plan is to buy for capital appreciation and a later sell, then regardless of timeframe, you’re a trader.

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