The Difference Between Us and You! Playing One Investing Style Against Another
Trading securities is not a monolithic activity. Everyone comes to it with their own angle and opinion, their own strength and their own investment horizon. It’s a game as individual as the number of participants involved, and as personal and idiosyncratic as every Bobby Cheez-Boy in the investment arena.
Obviously, then, what’s on the mind of the day-trader will not be of any concern to the intermediate- or long-term trader. Nor will the tools they bring to the table be the same, nor should they be.
Here at A Jew and His Money that just gives us one more means of ‘setting the trade,’ as we like to say – pitting, for instance, momentum traders against shorts, and rally chasers against the ‘buy and hold’ crowd.
We’ll have more to say about exactly how we do that in further installments of our Investor Education series, but for now, we offer the following set of investor definition-types as a means of self-analysis, the better to know your own penchants and proclivities, and how they might be used against you in the future.
Self-understanding will also help you with our trade recommendations. Going with those initiatives that best align with your investing type will, in the long run, produce better results.
To that end, have a look now at the following thumbnail sketches of seven of the more popular investing breeds, the better to help you find your bearings in your search for trading success.
- Fundamental Traders generally take a longer term view of the market and make their trade decisions based on widely accepted valuation metrics and documented growth rates of select companies. They focus their research on financial reports, economic data and an evaluation of company management. And there’s certainly a place for that, in our reckoning. But as we stated HERE, traditional methods of evaluating equities are fast losing their cache.
- Technical Traders play the market over a variety of time horizons. They base their buy and sell decisions primarily on price and volume patterns evident in the charts of securities, and employ a number of indicators that are price-volume derivative. Trend Traders are a type of technical trader, and we count ourselves among them. All our trades at A Jew and His Money seek to capitalize on a quick leveraged ride on the intermediate trend.
- Day Traders or ‘scalpers’ attempt to buy and sell securities anywhere between a few minutes to a few hours, and rarely hold positions overnight. They trade with a large stake and seek to capitalize on volatility, pulling in anywhere from a few cents to a few dollars out of every trade – depending on the price of the stock and the size of the line they’re trading. Most everyone who travels this route ends up dusty and broke.
- Swing Traders hold their positions longer than day traders but usually not for more than a few weeks. Their goal is to capitalize on the overall momentum of the market and/or any given security and ride the short term waves higher and lower. Swing Traders often focus on just a few stocks or industries and rely on both fundamental and technical analysis to inform their trade decisions.
- Buy and Hold Traders constitute the majority of market participants. They seek to own the best companies for the long haul, taking advantage of time, dividends and stock splits to accumulate their fortunes. Considering that we’re now approaching the end of the greatest bull market in history, we wouldn’t today advise a ‘buy and hold’ approach to anyone we cared even the slightest about.
- Value Traders are longer term traders who focus on finding good companies that are selling at a deep discount to their ‘true’ value. Fundamental analysis is relied upon almost exclusively for both buy and sell decisions, the latter of which is made when a company’s shares are deemed to be ‘fully valued’.
- Momentum Traders chase the hottest names for as long as they’re hot, relying on both technical and/or fundamental indicators to inform their trades. Everything from elevated volume figures to consistent quarterly earnings ‘beats’ will define a ‘momentum’ stock that might be traded on a daily, weekly or even long term basis.
And that does it, Finnegan.
It’s not exhaustive, but it should offer you a framework from which to determine which tools and strategies best comport to your own (twisted) investment philosophy – and which trades you’re best suited to undertake here at A Jew and His Money.
Best of British Luck!