Firstly what is the difference between a trader and an investor?
An investor is usually in for the medium to long term and is looking at a percentage (%) return on his capital outlay. Be it either shares or property investment. His main concern would be the dividend return that the company pays.
I f the current price of this asset declines but the income being generated has remained constant or much the same. Then the investor sees no cause to sell.
Now the trader buys an asset at the best price possible. This is with the intent to sell it again at a much higher price. These rewards often come from capital gains.
Another factor is time as the investor is in for the long haul whilst the trader is in for the shortest time possible to realise a satisfactory profit.
Another difference is their respective understanding of “risk not time. ”
The biggest difference is how they handle any downturns in the market. The trader seeing a downturn will exit the trade either taking a smaller profit or a small loss.
The smart investor should do the same, but these are in the minority. What usually happens is the investor believes that his stock selection criteria was correct and hopes that the market will reverse, so therefore he hangs on.
Once it becomes apparent that the uptrend is finished it is usually too late to sell because he has lost so much profit or capital, he now cannot afford the loss and decides to keep the stock as a long term investment. And hopes one day it will recover and make money. (Does this ring a few bells or sound familiar?)
The trader and investor do have one thing in common and that is they both profit from rising prices.
Christopher Strudwick is a keen amateur investor on the Australian Stock Market. Visit his weblog for more free articles and useful information at http://www.asxnewbie.com