Back to School - Back to Basics

As wealth counsel and portfolio managers, we are sometimes asked to explain the difference between investing and trading.

Trading involves the buying and selling of securities with the intent of gaining the most profit in the shortest period of time with less attention paid to the company’s fundamentals or what might be going on in the surrounding global economy than the movement of the stock price at any given moment of time.

Investing on the other hand involves practiced patience and discipline so it not for the get-rich-quick mind set at all. Investing is far more suitable for risk averse individuals who have one or more goals that takes time, planning and money to accomplish.

What differentiates successful portfolio managers from DIY traders is that any credible portfolio manager has a stated philosophy, style and approach and equally importantly, an index benchmark that their long term performance can be measured against. This benchmark is important because it should closely match the outcome you are looking for to meet your goals within your tolerance and capacity for risk. DIY traders on the other hand depend almost entirely on the result of their next trade for their success during times when the odds are not always in their favour.

You have to decide what you are. If you choose to be an investor, you have to have patience and also the ability to handle the occasional time-out when the markets tracks sideways or go down. How much patience you might ask? A rolling three to five years time horizon is considered the minimum guideline for successful investors. Anything less than this will expose you to the frailties of traders who are influenced sometimes too much by fear and greed. So decide. Are you a trader or an investor?

If you are a trader, you can do it all on your own for virtually free. Just listen to all of the rumours, subscribe to one or more of stock picking newsletters and sign up with an on-line trading service.

If you are an investor, seek quality advice from someone who has only your best interest in mind as they guide you down the sometimes difficult path toward your goals. Be willing to pay for this advice as well because otherwise, you are not a true investor.

David J. Angas

Senior Vice President, Financial Advisor
Family Wealth Counsel Advisor Group/Raymond James Ltd.

Information in this article is from sources believed to be reliable; however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views are those of the author, David Angas, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member Canadian Investor Protection Fund.