The Difference Between Trading and Investing

Summary

This 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

• 📈 The New York Stock Exchange trading floor is a traditional image associated with stock trading, but most trading is now done online.
• 💼 Trading and investing are often seen as distinct practices, with traders focusing on short-term gains and investors on long-term growth.
• ⏳ Investors look for long-term appreciation, while traders capitalize on short-term market volatility.
• 🕵️‍♂️ Professional traders are often hired by companies to execute investment decisions and secure the best prices for shares.
• 📊 Traders generally focus on technical indicators and historical pricing information to exploit short-term trends and patterns.
• 🔍 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.
• 🚀 Trading can be high-risk and competitive, often requiring significant time and effort with the potential for high rewards.
• ⚠️ Amateur traders face challenges due to limited information and competition from industry professionals with advanced resources and algorithms.
• 💡 Despite its risks, some people make a living from trading, but for the average person, long-term investing is generally advised.
• 🌐 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?

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Outlines

00:00

📈 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.

05:00

💹 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.

10:02

⏳ 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.

📉 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.

⚖️ 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.

💡 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.

Keywords

💡Stock Trading

Stock trading refers to the buying and selling of shares in publicly traded companies. It is a core concept in the video, illustrating the historical practice of trading on the New York Stock Exchange floor and the modern shift to online trading platforms. The script discusses how individuals can now engage in trading from home, emphasizing the change from traditional in-person trading to a more accessible and individualized approach.

💡Investing

Investing is the act of committing money with the expectation of generating a profit or return over time. The video contrasts investing with trading, highlighting that investors typically focus on the long-term growth and appreciation of assets. The script explains that investors may hold stocks for years, anticipating that the company's value will increase over time, which is different from the short-term focus of traders.

💡Trader

A trader is an individual who engages in the short-term buying and selling of stocks to profit from market volatility. The video describes traders as those who operate with the primary objective of making money through frequent transactions, as opposed to investors who focus on long-term growth. The script provides examples of different trading strategies, such as day trading and swing trading, which are characterized by short time frames.

💡Intrinsic Value

Intrinsic value represents the true worth of a stock, which may not always align with its current market price. The video explains that while the stock's price is influenced by the number of buyers and sellers, its intrinsic value is a theoretical measure that an all-knowing entity would be aware of. Investors often try to estimate this value to make informed decisions, whereas traders typically do not concern themselves with intrinsic value.

💡Market Volatility

Market volatility refers to the rapid fluctuations in the price of stocks or the market as a whole. The script highlights that traders capitalize on these short-term changes to make profits, in contrast to investors who are more concerned with long-term trends. Volatility is a key factor that traders monitor and exploit through various strategies.

💡Day Trading

Day trading is a specific type of trading where positions are opened and closed within the same trading day. The video mentions day trading as an example of the fast-paced nature of trading activities, where traders aim to take advantage of intraday price movements without holding positions overnight.

💡Swing Trading

Swing trading is another trading strategy that involves holding positions for a longer period than day trading, which can range from a few days to several weeks or months. The script describes swing trading as an extension of the trading process, where traders look to profit from short-term price swings over an extended timeframe.

💡Technical Indicators

Technical indicators are statistical tools used by traders to analyze historical price data and identify trends or patterns in the market. The video explains that traders often rely on these indicators to make decisions, rather than focusing on the underlying fundamentals of a company. Examples from the script include the use of charts and graphs to inform trading decisions.

💡Risk

Risk in the context of the video refers to the potential for financial loss in trading activities. The script emphasizes that trading is a high-risk practice, especially for amateur traders who may not have the same resources, information, or expertise as professional traders. The video suggests that the odds of success in trading are often not in favor of the individual.

💡Squarespace

Squarespace is mentioned in the video as a sponsor and is described as a website builder with a user-friendly interface and a variety of features. The video discusses how Squarespace can help individuals or businesses establish an online presence, offering tools for e-commerce, email campaigns, and more. The script provides a coupon code for viewers to try the service and potentially save on their first purchase.

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

go to Squarespace com Sasha the plain

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purchase of a website or domain using

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

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plain bagel my name is Richard coffin

thanks for joining me today so perhaps

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