The Difference Between Trading and Investing
Summary
TLDRThis video explores the distinction between stock trading and investing, highlighting the fast-paced, high-risk nature of trading. It explains that traders focus on short-term market volatility, often using technical indicators, unlike investors who seek long-term growth based on a company's intrinsic value. The video advises that, for most, investing is a safer approach than the competitive and uncertain world of trading, and ends with a sponsored segment on Squarespace for building a professional online presence.
Takeaways
- đ The New York Stock Exchange trading floor is a traditional image associated with stock trading, but most trading is now done online.
- đŒ Trading and investing are often seen as distinct practices, with traders focusing on short-term gains and investors on long-term growth.
- âł Investors look for long-term appreciation, while traders capitalize on short-term market volatility.
- đ”ïžââïž Professional traders are often hired by companies to execute investment decisions and secure the best prices for shares.
- đ Traders generally focus on technical indicators and historical pricing information to exploit short-term trends and patterns.
- đ Understanding the difference between a stock's price and its intrinsic value is crucial; investors focus on long-term intrinsic value while traders prioritize short-term price movements.
- đ Trading can be high-risk and competitive, often requiring significant time and effort with the potential for high rewards.
- â ïž Amateur traders face challenges due to limited information and competition from industry professionals with advanced resources and algorithms.
- đĄ Despite its risks, some people make a living from trading, but for the average person, long-term investing is generally advised.
- đ Squarespace is recommended for building a professional online presence, offering various themes and features to support businesses and personal projects.
Q & A
What is the main difference between stock trading and investing according to the script?
-The main difference lies in the approach to making money from investments. Investing is a long-term strategy where one profits from the growth of an asset over time, while trading is a short-term activity focused on buying and selling stocks to take advantage of market volatility.
What does the script suggest about the typical mindset of a trader?
-The script suggests that traders have a fast-paced, competitive mindset, often focusing on short-term gains and market fluctuations rather than the long-term growth of an asset.
Why might the script imply that trading is not the best approach for most people?
-The script implies that trading is a high-risk practice requiring a significant amount of time, effort, and often leverage, which exposes traders to short-term volatility. It also suggests that amateur traders are at a disadvantage when competing with professional traders who have more resources and information.
What is the role of a trader in an investment firm as described in the script?
-In an investment firm, a trader's role is to help the firm get the best price for the shares they want to purchase or sell, executing the investment decisions made by the firm.
How does the script differentiate between the timing of trades and the analysis of stocks for traders versus investors?
-For traders, the timing of trades is short-term, focusing on quick buy and sell actions to capitalize on price swings. Their analysis often relies on technical indicators and short-term market trends. Investors, on the other hand, have a long-term strategy, focusing on the intrinsic value of stocks and their long-term growth.
What is the intrinsic value of a stock as mentioned in the script?
-The intrinsic value of a stock is its true worth, which theoretically should be reflected in the stock's price over time as it incorporates all known company information. However, human factors like fear or greed can cause the stock's price to deviate from this intrinsic value.
How do passive and active investors differ in their approach to investing according to the script?
-Passive investors ignore short-term fluctuations and focus on the long-term growth of the intrinsic value of stocks. Active investors attempt to estimate a stock's intrinsic value to buy stocks at a price lower than their worth, benefiting from both the rise in intrinsic value and the price correction.
What type of analysis do traders typically focus on according to the script?
-Traders typically focus on technical analysis, which involves the use of historical pricing information and indicators to identify trends and patterns for quick exploitation.
Why might the script suggest that trading is similar to playing poker?
-The script suggests that trading is similar to playing poker because both involve a high level of chance, competition with experienced players, and the potential for significant gains or losses.
What is the role of Squarespace as mentioned in the script, and how can viewers benefit from it?
-Squarespace is presented as a website builder that offers an all-in-one tool for building an online presence. Viewers can benefit from its easy-to-use platform, professional-looking themes, and features like e-commerce capabilities, email campaigns, and appointment scheduling.
What is the discount offer provided by Squarespace for viewers of the video, and how can they use it?
-Squarespace offers a 10% discount off the first purchase of a website or domain to viewers of the video. They can use the coupon code 'the plain bagel' during the checkout process to avail of this discount.
Outlines
đ Introduction to Stock Trading and Investing
This paragraph introduces the video topic by discussing the traditional image of stock trading on the New York Stock Exchange floor. It contrasts this with modern online trading, explaining that while trading involves stocks, it differs from long-term investing. The paragraph sets the stage for exploring these differences.
đč Definitions of Investing vs. Trading
The paragraph explains the literal definitions of investing and trading, noting that while both involve spending money for future returns, investing focuses on long-term growth, whereas trading is short-term and involves frequent buying and selling. It clarifies that there is no strict technical distinction but highlights the differing approaches.
âł Timing and Analysis in Trading
This section delves into the timing of trades and the analysis involved. It explains that investing is a long-term strategy based on the company's growth, whereas trading aims to capitalize on short-term price fluctuations. It also discusses different trading styles like day trading and swing trading, emphasizing the higher frequency of trades.
đ Intrinsic Value vs. Stock Price
The paragraph explains the difference between a stock's price and its intrinsic value, stating that while investors focus on the long-term intrinsic value, traders are more concerned with short-term price movements. It also introduces the concept of technical indicators used by traders to identify trends and patterns.
âïž Risks and Realities of Trading
This section discusses the high-risk nature of trading, the effort and time required, and the competition from professional traders with advanced tools. It compares trading to playing poker, suggesting that while some can make a living from it, the average person is better off investing long-term to benefit from market growth.
đĄ Conclusion and Sponsor Message
The final paragraphs wrap up the discussion, reinforcing that investing is generally safer for the average person. It transitions into a promotional message for Squarespace, highlighting its features for building a professional website and offering a discount code for viewers.
Mindmap
Keywords
đĄStock Trading
đĄInvesting
đĄTrader
đĄIntrinsic Value
đĄMarket Volatility
đĄDay Trading
đĄSwing Trading
đĄTechnical Indicators
đĄRisk
đĄSquarespace
Highlights
Stock trading is often visualized as the bustling New York Stock Exchange trading floor but most trading is now done online.
Trading is commonly distinguished from investing despite both involving stocks and other investments.
Investors typically seek long-term growth, while traders aim for short-term profits through frequent buying and selling.
The difference between trading and investing lies in the timing of trades and the analysis of stocks.
Investors focus on a company's growth and profits over time, whereas traders exploit short-term market volatility.
Traders may work for companies to execute investment decisions or operate independently for personal profit.
Investing is a long-term strategy, often with the aim of holding stocks for 5 to 30 years or more.
Trading involves fast-paced buying and selling, including day trading and swing trading over weeks to years.
The intrinsic value of a stock is its true worth, which may differ from its market price due to human factors.
Investors estimate a stock's intrinsic value to buy below worth and benefit from price appreciation.
Traders focus solely on stock prices and trends, without concern for a company's intrinsic value.
Technical indicators, based on historical pricing, are key tools for traders to exploit short-term patterns.
Some traders incorporate qualitative information to anticipate short-term stock price shifts.
Trading requires a fast-paced, competitive mindset and can involve bluffing to hide true intentions.
Trading is high risk, with many traders leveraging returns and exposed to short-term volatility.
Amateur traders often face an uphill battle against professional traders with superior resources.
Investing is generally advised over trading for the average person due to lower risk and broader market growth potential.
Squarespace is highlighted as an all-in-one tool for building a professional website with ease.
The video concludes with a promotion for Squarespace, offering a discount for viewers with the coupon code 'the plain bagel'.
Transcripts
this video is sponsored by Squarespace
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code the plain bagel if I were to ask
you about stock trading this would
probably be the image that comes to mind
the New York Stock Exchange trading
floor a scene synonymous with stock
investing itself this is where traders
meet in person to buy and sell stocks
finding deals for their clients and
employers and yelling tickers and prices
across the trading floor well this used
to be how most trading was done these
days you can do most of the work online
in advancements in technology have even
allowed everyday individuals to take up
trading at home to try and make money
but despite the fact that trading
involves stocks and other investments it
is often seen as a very different
practice from investing what you or I
probably do when we buy or sell stocks
you see being a trader
whether professionally or as a hobby is
different from being an investor and
while you've probably heard of people
making quite a bit of money off trading
it's an area that most people are best
served avoiding why will answer that
question and more on today's plain bagel
if you look at the literal definitions
of the terms investing in trading you
probably won't grasp the difference
between the two
after all investing is the act of
spending money with the hope of
generating some larger benefit or return
in the future while trading is the act
of buying or selling investments it's
not very clear how the two differ in
fact there is no technical distinction
dictating what counts as trading and
what counts as investing but the terms
are often used to refer to two very
different approaches to making money
from investments an investor is someone
who places their money in something and
looks to profit from that asset growing
over time whereas a trader is someone
who makes money in the short term by
buying and selling stocks frequently in
other words while one relies on gradual
appreciation the other focuses on market
volatility now being a trader can mean a
number of different things
many companies actually hire traders to
help them carry out their investment
decisions for example an investment firm
may decide they want to own shares of
plain bego Co so they'll hire a trader
to help them get the best price for the
shares in this video however we'll be
focusing on traders who operate with the
sole objective of making themselves
money and there are two main areas where
in this practice differs from investing
the timing of trades and the analysis of
stocks for timing as we mentioned
investing is typically a long-term
strategy whereas trading is more
short-term when you invest in a stock
you're betting that over time the
company will grow either by expanding
its asset base or its profits you can
invest in a company for as little time
as you want but generally speaking
you'll be aiming to sell the stock to
510 even 30 years from now on a day to
day basis the price of a stock may
fluctuate and indeed some investors try
to take advantage of that by buying when
the stock's prices abnormally low but
once the purchase is made the focus
tends to shift to the long-term movement
rather than the short-term volatility
training on the other hand is the fast
and furious approach it involves buying
and selling the investments to take
advantage of short-term price swings day
trading for example involves individuals
buying and selling stocks same day while
swing trading expands the process - of
few weeks months or sometimes years
there are other cells of trading as well
but they all tend to fall under fairly
short timeframes
sometimes even making buys and sells
within a matter of seconds because of
this trader submit many more trades than
investors and often cycle through many
more positions but selling something
shortly after buying it doesn't alone
make you a traitor so let's move on to
the second point of distinction the
analysis to understand how the analysis
of a company and its stock price varies
between traders and investors we first
need to explain the difference between a
stock's price and its intrinsic value
theoretically
the price of the stock only reflects the
number of buyers and sellers trading
that stock at that given point in time
and past the stock price there's some
intrinsic value a true worth of that
stock that only an omniscient being
would know over time the price of the
stock should track closely to this
intrinsic value as buys and sells
factoring company information known by
the investors but human factors like
fear or greed might lead a stock's price
to deviate from its actual worth from
time to time within the world of
investing people take two approaches to
this information passive investors
ignore short-term fluctuations in stock
prices and look only to benefit from the
rising intrinsic value knowing that even
if they do buy an overpriced stock they
should benefit in the long term as the
aggregate market grows active investors
instead try to estimate a stock's
intrinsic value so that they can buy the
stock for less than it's worth
allowing them to benefit not only from
the rise in intrinsic value but also
from the return of the price to its
intrinsic level well these two
approaches vary from one another they
both generally depend on the intrinsic
value of a stock increasing traders on
the other hand only care about the
stocks price there is no attempt to
estimate the intrinsic value of their
stocks and indeed many traders buy and
sell stocks without even knowing what
the company does looking only to take
advantage of the short-term swings or
trends in its stock price for this
reason it's common for traders to focus
their analysis on technical indicators
these are measures and gauges that only
take into account historical pricing
information
to help the trader determine whether
there's a developing trend or pattern
that they can quickly exploit it's the
graphs and charts you imagine when you
think of a professional trader sitting
in front of their four screens buying
and selling stocks now some traders do
incorporate qualitative information into
their research as well but it is usually
only to take advantage of a short-term
shift that they're expecting in the
stocks price for example if a trader
finds out that a company is announcing
news tomorrow they may decide to buy the
stock with the belief that the company's
announcement will be positive leading to
a jump in the stocks price in either
case traders generally only focus on
snippets of a company's information
rather than trying to develop a broader
understanding of the firm's operations
so those are the two primary ways
trading differs from investing it
requires a very different mindset it
operates in a very fast-paced
competitive environment some would even
argue that it requires a fair amount of
bluffing this was more so the case when
traders used to talk in person about the
stocks they wanted to buy and sell but
even today traders often try to hide
their true intentions when they submit
in order after all if you can convince
other traders that you don't want to buy
something you may be able to get it for
a lower price just like with anything
else
all of this can make trading a very
alluring practice for young investors I
mean competition fast trades quick
payoffs it's got it all and with all the
ads we see online of millionaires and
their private jets explaining how they
went from zero to hero with their $300
trading strategy it probably seems like
a fairly easy field to enter but trading
is a high risk practice most traders put
a lot of money behind their individual
trades sometimes even borrowing to
leverage their returns which exposes
them quite heavily to short-term
volatility of individual positions it
also requires a lot of effort in time
many trades only end up yielding a
fraction of a percentage point meaning
traders are continually rolling their
money into new positions and honestly
when it comes to amateur traders the
truth is there just isn't that much
working in your favour with such a
narrow time frame you're often forced to
make decisions on fragmented information
and when you consider that you're
competing with industry professionals
with Kobe
amounts of money cutting-edge research
and even industry best algorithms I can
trade faster than you can say the word
stock it's just not a fair fight now I'm
not saying you can't make money trading
there are people who make a full-time
living from their home with trading
activities in some companies even offer
salaried positions for traders like we
mentioned earlier so there are some
merits to the field but trading is a lot
like playing poker you can be very good
at it and indeed some people do make a
living from it but there's a lot of
chance involved with other great players
at your table
the odds are often not in your favor so
any advisor will probably tell you that
investing is the better way to go for
the average person like Harry no more
comprehensive research and holding over
the long term you're more likely to
benefit from the broad growth of the
economy and the stock market as a whole
sure you won't get that same rush as a
tripled levered buy on an out of the
money put option but that's probably for
the best after all if you're looking for
the rush of high-stakes and not so great
odds you may as well go to the casino at
least there you'll get free drinks
thanks for watching if you like this
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plain bagel my name is Richard coffin
thanks for joining me today so perhaps
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