jmot’s Blog

Investor VS Trader

Posted by jmot in Monday, April 9th 2007 under: Books No Tags

Snow View I was reading Dr Alexandra Elder’s book titled Come Into My Trading Room: A Complete Guide to Trading. A must-read for all budding traders. He brought up this concept of an Investor vs a Trader. A concept that we must be clear of so that our learning strategy can be geared towards the right path. The idea is pretty simple. The difference between an investor and a trader is summarized in the following table:

Investor	Trader
The proceeds from his investments do not count towards his monthly expenses. In the first place, his very first objectives should have been to grow his existing wealth. Making use of the compounding factor to further expand his wealth.	Trading is his job! He trades for a livelihood.
He usually invests for long term, usually more than a year, and is not too concerned with short term fluctuations in the stock price as long as the company fundamentals remain sound and strong.	The trades are usually short to mid term. A position maybe opened and closed in a matter of minutes (as in day-trading) to months, but never years.
He usually invests in companies based on their fundamentals.	He makes use of both fundamental and technical analysis.
He usually has a more diversified portfolio than a trader to hedge against unforseen risks.	He has no “portfolio” so to speak as his trades are short to mid term. The number of open positions he can keep open should be determined by his money management principles.
His portfolio return is usually benchmarked against that of some broad market indices (eg, S&P 500) as a form of performance evaluation.	The trader’s main enemy is himself, his own fear and greed. He should strive to always execute his trade better each time and not put as much focus on the returns of his trades.