Let us see what is needed to be a trader or an investor and judge for yourself if you have the mindset of a trader or investor.
You are an Investor if you
Have long-term view
If you are an investor, you should have a long-term view. Many Indian retail investors think that investments for 1 year is a long-term but 1 year horizon is not long-term and if you are a long-term investor your view should be at least 5 years or more.
Short term investment means you are investing for anything under 1 year or under 6 months but when you think about investing in business, you don’t expect to turn things around in 1 year or so and normally it takes 3 to 5 years to turn things around in business. So as an investor you should be able to provide the time the business needs.
If you have a view of investing for more than 5 years, you are an investor but if your views is even 1 year to 2 years, you are more of a trader than an investor.
Are not bothered by daily aberrations
Market will punish as well as reward the companies on either direction. If you are not bothered about such market aberrations, you are an investor. Mr. Warren Buffet has admitted that investments in market can go down by 50% at any given point of time.
You are a Trader if you
Can book loss
Investors can have loss in the portfolio but they are not booking the losses and so can have Psychology of losses working in their favor. As a trader the most difficult part is to book losses when you are hitting a stop loss.
If you can book losses, you are a trader but if you have difficulties in booking losses, you may have issues being a trader.
If you took a position as a trader but as soon as it was a loss making trade, converted it into an investment, you are better off investing than trading in market.
Are jittery in losses
As an investor you should be fine when your stock is going down because it can be something that you expect or can be looked as an opportunity but if you have a trader mindset, you can jittery when your trade is not doing what you anticipated.
Cannot control looking at portfolio
Cannot control looking at ones portfolio in every possible chance. I think it is something which is a touchstone to understanding if you have a trader or an investor mindset.
As an investor it does not matter what your company is doing on a day to day basis and it is more important to only know when there are certain key events lined up in the company but if you open the price of the stock you have invested into on a daily basis not because you want to be selling it off but just too look at what your portfolio is doing, you can have issues controlling your sentiments when your stock is performing on either side of the extreme levels like going too much in your favor or vice-versa.
If you cannot control looking at your portfolio or build a habit to avoid portfolio evaluation too frequently, you can have issues being an investor. Yes, you should be evaluating your companies but not as frequently as daily or weekly. If you are an investor and if your stock has fallen 50%, I am damn sure when the price hits back to your purchased levels, you will think about getting the stock off from your portfolio and it could be at this point when business has turn things around and is ready to sky rocket.
You can always be a trader in some set of stocks and investor in others and be both trader and investor at the same time. It is just that you have to understand what you are doing.
Have I missed anything that can help us understand if you are a better at being a trader than an investor or vice-versa. Share them in comments below.