Because there are two valuations available all the time, there are two kinds of buyers.
It is not quite that simple. The real world has a spectrum that extends from these two extremes. It is easier to know about them when dealing with the pure positions. One kind tends to think of their securities as shares they own, while the other sees stocks they own.
I know they are synonyms but the difference subtly changes your mind set.
These people are interested in intrinsic value. They tend to hold securities longer. They tend to hold them forever if their investment parameters are being met. In most cases, there metrics are free cash flow and its rate of growth.
If these are working, value will tend to look after itself.
They tend to reevaluate the business periodically to be sure their metrics are working and there are no indicators of failure in the future. Challenging but doable.
The key issue is they see the stock market as providing shares in a business. They often relate to their portfolio as so many shares of Company A.
These people have a different metric entirely. They know that the market always corrects and over corrects. They know stock prices fluctuate and they know prices are driven in the short run by emotion. Their expectation is that they can anticipate what other investors will do before they know to do it. Their advantage relies on timing and how long it will take the others to adjust. And how much they will adjust.
They use that to establish their positions.
Investors use objective metrics in their assessment of business value. Time is forever. They expect to be rewarded by understanding value and income from it. They play their skill against the world economy and the business managers within it.
Traders use their expertise and experience to know how others behave earlier. They play against the other players and the businesses just supply stock chips to play.
In the middle are other groups. Those who rely on both aspects and those who rely on neither.
The ones who use both skill sets do best of all. Those who rely on neither are the ones who make the top half of investors possible.
It is important to notice people are more unpredictable than businesses and the economy taken as a whole.
Investors rely on time. Traders rely on timing. Time is easier.
It is a truism that getting rich quick is difficult. Mostly a matter of luck. On the other side, getting poor quick is relatively easy. Try to get rich quick.
Traders have that possibility.
Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.
In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.
Please be in touch if I can help you. firstname.lastname@example.org 866-285-7772