Trading vs Investing

As I talked to people, I realise there is tons of confusion out there between trading and investing.

When I ask people what they invest in, sometimes the answer come back as ‘something that generates double or triple digit returns’. Sometimes the answer comes back as ‘something that I HEARD is good’.

Investing is something slow, growing and works on compounding effect.

Trading is taking advantage of other people and news to buy and sell at a dislocated price.

Investing is funding companies with money to expand their business and improve their offerings.

Trading is buying and selling, moving money around without actually contributing additional value to the product.

(of course, some free market capitalists will take to task that trading contributes value by price discovery, but how much trading there needs to be to discover price? At some point, the marginal value becomes negligible)

As we come into a world where more and more people trade without actually contributing to the value of the receiver, fewer and fewer productive use of assets is actually going towards improving the wellbeing of society as a whole.

The analogy of the Tortoise and the Hare works well here. The Tortoise goes slow but accumulates at a measured pace. The Hare goes fast, but misses the mark.

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