Which one are you? I have been contimplating some ideas I recently saw on Mad Money with Jim Cramer. He says that you really need to be both a trader and an investor. So what’s the difference? An investor takes a long term outlook, say 5-20+ years. You pick a good looking stock on its fundamentals and earning outlook and hold on for the ride. On the other hand traders are active. These are the “gamers” that are actively buying and selling stocks and taking profits here and there as the market swings back and forth. While on paper being an active trader seems very promising, and it is if you can pull it off. I feel for the average trader that there is a very large risk of losing a lot of money quickly. Trading short-term gains seem to only work if you are moving a substantial amount of money. Where as seeing a short ”pop” up of 2% on a 2500 dollar position after commission leaves me with about $3 7.50 @ a 1.5% gain. While some may argue this is a lot of money, taking these profits on a stock of a company you believe to be a good long term investment has just increased your chances of missing out on near gains of the company and potentionally having to buy it at a higher price.
While I believe long term investing is right for about 80% of home investors, there are some that may need more excitement. I would suggest that you take a percentage of your total portfolio and use that income to actively trade stocks. Chart your gains for a year and compare them to the dividend stocks you just held on to. If there is a positive difference between the two and is large enough to justify the time spent continue, but if you are not beating your long-term valued stocks, then get out of being a trader and leave that for the big mutual funds.
In a market that seems to make no sense trading just feels a lot like gambiling. Where a market drops on good news and rises on bad news what is a trader suppose to do? You decide, roll the dice or stay in and hold your cards.
