Investors, traders, and gamblers
By: Redgum Holdings Corp
Tags: Trading, Cryptocurrency, Gambling, Investing, Stocks

Investors, traders, and gamblers

Image Source: Maxim Hopman on Unsplash

Even experienced investors occasionally get swept up in the emotion of market trends. When they do, they cease to be investors, and become guessers and gamblers. Best case, they are traders. Crypto has been one such asset class to lead investors to stray from their usual discipline. There have been others before, and there will be more in the future

While no one can say for sure what the future performance of a stock will be, certain investors, for example Warren Buffett, would say they have enough information to do a good job of assessing quality companies that have a bright future. Case in point, Buffett has held Coke Cola forever. Buffet buys great companies and holds them. He is the definitive INVESTOR.

Buffett is famous for saying he does not invest in businesses, he does not understand. Traders perhaps don’t care. For traders, they rely on other considerations to place their bets. Technical analysis, option CALL/PUT movements, news, rumors, risk off/on, trading strategies, and more.

There is an old saying that the market is often wrong in the short-term, driven by emotion, and right in the long term, driven by fundamentals. The buy and hold investor is arguably more likely to do well, because in the long-term the market is right. A trader on the other-hand has deal with short-term emotion, sudden shifts caused by news, rotations out of one sector to another, and more. A Trader also has to have the skill to see the early warning signals of which way a stock or option is going to move.

Is a trader a gambler? I would not put traders in the class of someone buying a lottery ticker. I would perhaps even put traders above knowledgeable horse racing punters. However, if you have not mastered the craft of trading, there are many ways to get badly burned. There is reward, but there is significant risk as well.

Which brings us to everyone’s favorite asset these days, crypto. Many would argue that with crypto, there is no intrinsic value. No P&L, balance sheet, or cash flow statement to look at, in order to assess the quality of an asset. To some extent that is true. If you believe a crypto coin will go up in the long run, you can always buy on the dips and sell or hold during good times. You can also do systematic investing, ignoring short-term fluctuations, just like you can with other asset classes. Lastly, you can do research, and have a somewhat knowledgable view on the future of a business/ecosystem that uses a crypto coin.

Whether you are an investor or a trader, you have to do your homework, and put in the hours coming to informed views. There are no facts about the future, so sometimes you will be right, and sometimes you will be wrong. Those who buy assets without doing their homework, without putting in the hours, simply following trends, are perhaps the most true gamblers. Sometimes they will gamble correctly, all the way to the moon. More often than not though, they will lose their money. The “house” has a clear advantage over these players.

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