Stock Trading Versus Stock Market Investing
Perhaps one of the most misunderstood, yet basic, truths about the stock market is the difference between stock market traders and stock market investors. The two strategies are entirely different, based on different personalities, analytics, and tactics. However, many would be investors’ use the terms interchangeably, and as such, are probably confused then why taking advice from one then the other always proves unsuccessful.
The main competition of the stock trader is the market maker, which is the institutional investor or investors that buy securities packages directly from the companies and sells them to retail investors. The liquidity of the market makers' shares is what keeps the market liquid at any given time, and market makers are the entities that stabilize the moment to moment price of a stock. Market makers are extremely experienced traders with the latest in automated computerized technology.
A successful stock trader attempts to cut the market maker off from some of his shares and sell them at a profit to the retail investor first. This can be done in seconds or over a matter of weeks by a method known as swing trading. Successful stock traders are able to read charts and decipher reports instantly, and usually have access to the latest of each.
A stock market investor does not concern himself with the dealings of the stock trader. The stock market investor is interested in finding good companies to invest in over a period of months to years, and does not worry about the short term movements of the market makers and stock traders attempting to profit in the short term.
To be a successful stock market investor requires more research and proper analytics than technology and speed. Be prepared to vet the companies you like by reading their 10-K and 10-Q reports, listening in on investor calls, and keeping up with the investor relations associates at the company. A successful stock market investor usually chooses an industry in which he or she has some experience so as to be able to better decipher the data he receives.
To be a successful short term or long term investor usually requires picking one strategy over the other and sticking to it. To be a stock trader requires speed and the latest technology. To be a stock investor requires research and dedication to analyzing data. The middle ground is no man's land, and the sooner you pick one side or the other based on your personality and resources, the better off you will be.
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