Trading vs Investing


I often hear from people, "I don't trade. I invest. I buy a mutual fund and I hold it". Mr. Investor, did you know you are trading on a regular basis? Are you aware that mutual fund managers are changing their positions by selling certain stocks and buying others?

Mutual funds must report quarterly what stocksthey are holding. You can get those reports ifyou want them. I can't see where it will do youany good if you are going to blindly hang on tothe fund.

A few professional traders will request thesebreakdowns only if a fund is greatlyoutperforming the market. They will see whatstocks the fund manager has that is making thisfund do so well and may buy those stocks. Veryclever.

I know your broker told you that you have tolook at the returns for the past 5 or 10 years. What nonsense. Do you care what the fund hasaveraged for the past 5 or 10 years or do youwant to own one that is making money now?

Fund managers are constantly trading tryingto increase the return for their investors. It is ashame most of them have not done a better job. They are always comparing themselves to theS&P500 index. When they do that well they thinkit is wonderful and they never stop bragging.

The S&P500 index is an average of the market. Mr. Fund Manager gets excited doing an averagejob. Does your boss like it when you areaverage? He expects more from you. And youshould expect more than average from anyinvestment you make especially if it isrecommended by an "expert" broker or financialplanner.

If anyone does an average job he will beemployed until the boss finds someone who willdo a better job and then Mr. Average can findthe door. That should be the same way youexamine the stocks and funds you own. Thenonperformers should be sold and new ones foundthat will make money or go to cash. Don't relyon your broker. His company never wants you tosell.

Investors who buy for "the long haul" arelong term traders. They are not knowledgeableenough to sell when the market is going down asit did in 2000. When there is nothing to investin then cash is the best position you can have. Having your portfolio in cash in a one or twopercent money market account will many timesoutperform owning stocks or mutual funds.

Everyone who invests is a trader. It isonly the time period that is different.

Copyright 2005


  • On main