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Why "value investing" is really trading, and why I love investing

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March 15, 2011 – Comments (6)

A lot of people have a negative connotation of trading.  I am not sure why, because unless you are an investment banker taking a company public, whether or not your style is "trading" or "investing", you are adding no more value than the other.  If you find trading more profitable, trade.  If you find investing more profitable, invest.  Investing has the tax benefits, but some people make a lot of money trading.  I do both, but I enjoy the trading more.

However, I don't understand how "value investing" is really investing.  You are buying a company because you think it is cheap, and you are selling it when it becomnes expensive.  The company could be a piece of crap and still be a "value".  An investment is more of a belief about a company continuing to prosper.  The price ratios shouldn't be as important, as long as its not ridiculously expensive.  As Buffett said, its better to buy a good company at a fair price than a fair company at a good price.  Value investing is not seen as trading because of its time frame...but who said trades cant be long term?

Also, one of the reasons I want to do this for a living (trading/investing) one day (hopefully sooner than later) is because it forces me to learn about everything.  I need to know how everything has an effect on everything so I undestand the price action, and so I can find undervalued sectors.  I spend most of my free time reading while my roomates get drunk (I can still party hard though) and no other profession really has this kind of advantage.

6 Comments – Post Your Own

#1) On March 16, 2011 at 1:50 AM, thecherryz (90.88) wrote:

I'd say that investing generally has a qualitative approach whereas trading has a short-term time frame and is generally done with either sector bets or a fundamental approach.  Swing trading is still trading even though the time period can be in months.  What about activist investing.  I'd say that these people do add value to the company (generally).  

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#2) On March 16, 2011 at 3:03 AM, Valyooo (99.43) wrote:

To me, trading is about buying the stock and investing is about buying the company

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#3) On March 17, 2011 at 7:41 PM, Investor89 (33.04) wrote:

I'm also a college student who spends a lot of time on the financial markets, altough I take the time from my studies to do that instead of my drinking-time. An investment is based on your calculator&pen as well as thougt, and for the longterm. Trading is based on a ruler&pencil for short term gains. The latter is improfitable most of the people who try it. For people like you and me it's almost impossible to make serious money out of it because of the transaction costs.

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#4) On March 17, 2011 at 7:59 PM, TheDumbMoney (53.33) wrote:

Hey there, I would say that both "speculating" and "value investing" are both forms of "trading."  I think you are maybe using "trading" both as a word-substitute for "speculating" and also as the composite of what both "speculating" and "value investing" are.  

Also I think all forms of "value investing" inherently have some speculative component, unless one's information is perfect, and even then they have a speculative component because new crap may happen.  To me, charting, sector-shifting, mood-gauging, buying a company that makes a cool product on that basis alone, etc., are all on the more speculative side.  Short-selling is interesting because it is on the speculative side, but short-sellers I have known and read about are typically VERY fundamentalist investors who simply are doing the converse of value investors, pointing out that a stock has become totally unmoored from economic reality on the up-side. 

I certainly agree that one can be succesful at either speculating/trading and "value investing".  History is replete with examples of spectacular failures and successes on both sides of the aisle, and also amongst those who mix them.

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#6) On March 18, 2011 at 4:11 PM, Valyooo (99.43) wrote:

Dumberthanafool,

The problem with shorting based on fundamentals is its much more  dangerous to average down.  Shorting based on fundamentals also usually needs some sort of catalyst.

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