Page 32 - THE MARKET WHISPERER

THE MARKET WHISPERER 31

You can teach someone to paint, but only a select few will go on to make
works of art that others appreciate and place a value on. The same is true
of trading.

The Difference between Trade and Investment

As you’ve surely realized, this book does not deal in stocks as an investment,
but rather in stock trading, which is actually no different from any other
field of business. An art dealer, for example, is very different from an art
collector. The art dealer will not buy famous paintings and store them in
the safe for decades, hoping their value will rise. The art dealer buys a
painting only if he or she estimates there is a certain range of profit in a
short-term sale. Like all of us, the art dealer needs to pay a mortgage and
cover food and other living expenses.

The stock trader is just like the art dealer: both buy and sell in order to
create the profit that provides for their livelihood. Professional traders buy
stocks at a price they know is too low, with the intent of selling at a price
they know is too high. Stock traders also make mistakes. But a stock trader
who succeeds more often than errs can make a living from the profession.

In contrast to the trader, investors do not try to earn their living from
the market. Investors turn their funds over to the management of others, or
manage their funds by themselves in the hope of positive yields. Investors
may improve or worsen their long-term financial status, but cannot assure
payment of their credit card bill at the end of each month. A trader plans
in advance how much money to risk with each transaction, whereas the
investor might, during tough times, discover that most of his or her money
has evaporated. Traders sleep peacefully knowing that most of their money
is in cash, whereas the investor is exposed to market fluctuations.

Traders use “fast money.” Investors use “slow money.” Can $100 in the
hands of a trader be the same as $100 in the hands of the investor? Not
at all. When the stock exchange ends the year with increases at 6%, the
investor’s funds have followed all trends over the year, and therefore these
funds are called “slow money.” By contrast, traders enter and exit on each
day of trade. An overall yearly change of 6% comprises hundreds of trade
days and tens of weeks during which the market rises or drops several
percentages. Traders follow these ups and downs, and unlike the investor,
traders use that same $100 many times, sometimes thousands of times over.
The trader’s money is “fast,” as it enters and exits the market incessantly.
We could say that a trader’s money works harder. The investor’s money is
“slow.” The trader’s “fast money” piggy backs on the “slow money.”