There’s a big disconnect on Wall Street today. It all boils down to the differences between investors and traders – two groups of market participants with completely separate philosophies. Today, I’d like to clarify the difference between the groups, and offer a piece of potentially profitable advice for investors in today’s market…
The key word in the phrase “investment philosophy” is “investment.” I presume you know that I believe in investing, rather than trading. There are several important reasons. Allow me to explain once again.
Investors fund companies and are rewarded by participating in their long-run profits. They are the engine of civilization and progress, and I’m not exaggerating. These are the people I want to help.
I remember the moment, in fact, during my first college macroeconomics class when I understood how important investors are to human progress. The professor was Ellis Lamborn, who played critical roles building both the Foundation for Economic Education as well as the Institute for Humane Studies. He explained that investors risk their own personal wealth enabling economic and technological growth that benefits everyone. Though investment spending accounts for a fraction of a percent of the total, it produces the single largest component of growth and new employment.
Traders, on the other hand, are not investors. Traders speculate on stock price movements that have nothing to do with economic health or growth. Rather than create wealth, they seek short-term gains and nothing more. I’ll defend them in a minute, but I do clearly delineate investors from traders. Traders are not the heroes that investors are, and they often complicate things for true investors.
Now, however, I want to give you an important piece of practical investment advice…
Understand that there are going to be major acquisition opportunities for you in the not-so-distant future. We’re going to see another dramatic stock downturn. It is inevitable and it is, in fact, healthy. Bubbles are nutritionally void and must be burst to make room for long-term sustainable growth. Those who act as if the overall market is on an uninterrupted course of increasing value are just like those who bet on the housing market near the top. Back then, I and many other rational economists were warning that we were in a bubble, but some people cannot hear that sort of thing.
I want you to remember, when the current stock market bubble bursts and opportunity arrives, that many of the greatest fortunes have been made during periods of fear and instability. I’m strongly recommending, in fact, that you get ready today for the next panic. Decide which companies you wish you’d bought when they were cheaper. Make a “rainy day list” and be ready to act on it. Keep your powder dry and be ready to buy grossly undervalued stocks for the long run.
If you do, you’ll be smiling when others are rending their garments and contemplating swan dives off skyscrapers. Incidentally, this is one of the primary benefits of being an investor, instead of a trader — the ability to enjoy downturns for the long-term investment opportunities they offer.
I said above that I defend traders, however, and I do. First of all, I don’t believe government has any role interfering in capitalist acts between consenting adults. Moreover, traders do provide liquidity and a kind of insurance for serious investors who may need to alter a position for whatever reason. In this, traders play the same beneficial role as ticket scalpers. Scalpers can’t be considered supporters of the arts, but they do perform a service. I defend even the often-maligned derivatives traders for similar reasons.
For transformational profits,
Patrick Cox
The Penny Sleuth
May 5, 2010
The key word in the phrase “investment philosophy” is “investment.” I presume you know that I believe in investing, rather than trading. There are several important reasons. Allow me to explain once again.
Investors fund companies and are rewarded by participating in their long-run profits. They are the engine of civilization and progress, and I’m not exaggerating. These are the people I want to help.
I remember the moment, in fact, during my first college macroeconomics class when I understood how important investors are to human progress. The professor was Ellis Lamborn, who played critical roles building both the Foundation for Economic Education as well as the Institute for Humane Studies. He explained that investors risk their own personal wealth enabling economic and technological growth that benefits everyone. Though investment spending accounts for a fraction of a percent of the total, it produces the single largest component of growth and new employment.
Traders, on the other hand, are not investors. Traders speculate on stock price movements that have nothing to do with economic health or growth. Rather than create wealth, they seek short-term gains and nothing more. I’ll defend them in a minute, but I do clearly delineate investors from traders. Traders are not the heroes that investors are, and they often complicate things for true investors.
Now, however, I want to give you an important piece of practical investment advice…
Understand that there are going to be major acquisition opportunities for you in the not-so-distant future. We’re going to see another dramatic stock downturn. It is inevitable and it is, in fact, healthy. Bubbles are nutritionally void and must be burst to make room for long-term sustainable growth. Those who act as if the overall market is on an uninterrupted course of increasing value are just like those who bet on the housing market near the top. Back then, I and many other rational economists were warning that we were in a bubble, but some people cannot hear that sort of thing.
I want you to remember, when the current stock market bubble bursts and opportunity arrives, that many of the greatest fortunes have been made during periods of fear and instability. I’m strongly recommending, in fact, that you get ready today for the next panic. Decide which companies you wish you’d bought when they were cheaper. Make a “rainy day list” and be ready to act on it. Keep your powder dry and be ready to buy grossly undervalued stocks for the long run.
If you do, you’ll be smiling when others are rending their garments and contemplating swan dives off skyscrapers. Incidentally, this is one of the primary benefits of being an investor, instead of a trader — the ability to enjoy downturns for the long-term investment opportunities they offer.
I said above that I defend traders, however, and I do. First of all, I don’t believe government has any role interfering in capitalist acts between consenting adults. Moreover, traders do provide liquidity and a kind of insurance for serious investors who may need to alter a position for whatever reason. In this, traders play the same beneficial role as ticket scalpers. Scalpers can’t be considered supporters of the arts, but they do perform a service. I defend even the often-maligned derivatives traders for similar reasons.
For transformational profits,
Patrick Cox
The Penny Sleuth
May 5, 2010
