Drawing a Clear Line

Many of us may be trading and investing in stocks at the same time hoping that stock trading can help to boost their investment capital while stock investment helps to build our retirement funds. There is nothing wrong with trading while investing except that some people are doing it wrongly.

Many of us may be trading and investing in stocks at the same time hoping that stock trading can help to boost their investment capital while stock investment helps to build our retirement funds. There is nothing wrong with trading while investing except that some people are doing it wrongly.

I have personally done trading while investing, making the most fundamental mistake, causing myself to lose some of my investments. However, I have also learnt, through the hard way, and will continue doing it to shorten my journey to financial freedom.

Trading vs Investing

Different people understands the meaning of trading and investing differently.

To me, trading looks at technical charts of the stocks to purchase, set up the trades when the price is about to break its previous high and exiting the positions when the chart says so. Apart from using charts, traders can also be trading on news. An example of news trading is to buy Apple Inc (NASDAQ: AAPL) shares in late-August/early-September before their any announcements of their new products. Since most of the times on Apple’s announcement of their new products are well-received by people around the world, their stock price is set to trade higher, selling when the new-product fever subside locking in profits. Trading are short to mid term investing that focuses mainly on entering and exiting positions.

Investing on the other hand focuses more on the fundamentals of the company.

Looking at the business and financials of the company, investors invest their money in the company rather than the stocks. They buy the stocks of the company to own the company, hoping to hold on to the stocks forever or at least till the reasons why they invested in the company no longer holds.

Every Investment Made is Different

Every transaction that was done to buy shares of a company is different. This is especially so if the transaction is to trade the shares or to invest the company.  A trader usually buy shares when the prices goes back to its recent high, hoping that the price will break the high price and goes even higher. An investor on the other hand usually buy shares of the company when the price of the shares is lower than the value of the company.

Some traders they buy shares for a particular reason. It may be that the price turned around and making new highs or that an expected news releasing that will drive the prices up. However, if the price instead of climbing, starts to fall and the traders held on to their positions not wanting to lose money by selling the shares at a lower price than they bought. Usually, these traders will start finding reasons to why holding on is right and the reasons are usually: “Oh, the fundamentals of the company looks okie, maybe I shall hold the shares long-term as an investment”.

Since there are differences between the reasons to trade the shares or to invest the company, one should never “convert” the trades into investments. When a trade is “converted” into an investment, the traders will usually find reasons to justify the conversion and these reasons are usually very unconvincing.

The Bottom Line

As mentioned, I had made the fundamental mistake of converting my trades to investments. In the end, I had to sell these trade-turned-investments at an even lower price than if I had cut my losses earlier. Trades are always trades, investments are always investments. Both are done because of different reasons and usually the reasons are different thus we should never convert trades to investments or investments to trades.

Delayed or Instant Gratification

People nowadays yearn for and work towards ‘instant gratification’, which to us, means the fulfillment of our needs and wants in the present or immediate moment. Delayed gratification works by fulfilling the needs and wants at a later stage, presumably with a greater rewards or outcome.

People nowadays yearn for and work towards ‘instant gratification’, which to us, means the fulfillment of our needs and wants in the present or immediate moment. Delayed gratification works by fulfilling the needs and wants at a later stage, presumably with a greater rewards or outcome.

In stock investing, most of us hope that we can be trading for a living with profits they earned from each trade is able to replace their salary of their existing job. However, when we started investing, most of us want to use investment to build our retirement funds so that we can retire earlier.

Today, I shall be using Apple Inc (AAPL) stock price for the last two years as our example to show you the benefits of long term investing or “delayed gratification”.

Apple Inc stock - Investor Monkey

A long term investor may choose to enter the market when the 50 days simple moving average crosses the 200 days simple moving average and exits the market when the moving averages crosses again.

With that, the long term investor will only have entered a trade on 18 September 2013 and currently still holding on to that trade.

Entry Date Entry Price Current/Exit Price Profit/Loss
18 Sept 2013 $64.472 $125.80 95.12%

A short term investor, however, may have entered and exited multiple trades during the same period.

Apple Inc stock chart with entry/exit

Entry Date Entry Price Current/Exit Price Profit/Loss
14 Oct 2013 $68.915 $75.238 9.18%
21 Nov 2013 $74.266 $75.238 1.31%
19 May 2014 $85.193 $114.618 34.54%
21 Oct 2014 $101.626 $114.618 12.78%
22 Jan 2015 $111.958 $108.711 -2.90%
10 Feb 2015 $122.02 $130.415 6.88%
23 Apr 2015 $129.67 $130.56 0.69%
Total Profit 62.47%

Although the short term investor may see an instant gratification, the total profit a short term investor may not match the profit bagged by a long term investor.

Of course, this is just a simple calculation. There are other factors which will pull the differences in total profits apart.

  • Commission. Every trade made comes with a commission. Though it may be a small amount compared to the trade size, it actually eats into the profits of the investor.
  • Dividends. This only affects stocks that pays shareholders dividends. Because short term investors enter and exit a trade frequently, they do not wait for dividends to be recorded before they exit the trade thus they may miss some of the dividends paid to the shareholders.

Bottom Line

Instant gratification may seem to be more attractive to most of us as the profits from each trade means cash that we can use immediately, unlike unrealised profits. However, the funds that we are trying to build through investing is likely to be used for retirement in the future, thus even if instant gratification is received, reinvesting the profits would be a wiser move so that you will be able to build a bigger retirement fund.

Race to Dominate Wearable Technology

Tag Heuer announced on 19th March that they will be launching their own version of smartwatch later this year. A venture with Intel. The smartwatch will be using Android operating system and is set to compete head-on with the Apple Watch. Who is set to dominate the wearable technology?

French luxury group LVMH’s watch maker, Tag Heuer, had announced on 19th March that they will be launching their own version of smartwatch later this year. A venture with Intel Corporation (NASDAQ: INTC), the smartwatch will be using Google Inc’s (NASDAQ: GOOGL) Android operating system and is set to compete head-on with the Apple Watch by Apple Inc (NASDAQ: AAPL).

Due to go on sale on April 24, the Apple Watch price starts from US$350 with its 18-karat gold model going for US$17,000. Being the company’s first new product since five years ago, the Apple Watch is being closely watched by competitors and investors.

Details about pricing, functionality and design of the Tag Heuer smartwatch was not disclosed. Tag Heuer Chief Executive, Jean-Claude Biver, aimed to launch the first Android luxury smartwatch in the last quarter of 2015.

Believing that wearable technology will take off, Intel struck several partnerships with several notable consumer brands like Oakley and Fossil.

The Bottom Line

With more and more wearable technology coming out of the production line, it is no wonder big companies like Apple Inc., Google Inc. and Intel Corporation would want to have a bite on this slice of the pie. We will have to wait and see with the head start that Apple Watch has over the Android smartwatch, are they able to dominate the smartwatch market or can Android smartwatch overtake Apple Watch to dominate the world of wearable teachnology.