Rhody,
but your definition of an "investment operation" does not strike me as being any different than a "trading operation". It doesn't, to my mind, give me a definition of "investing"
But you see this is your bias coming to the surface. You have a preconceived notion of what "Investment" means to yourself. Nothing wrong with that. But it does limit you as to your exploitation of investors within the market.
Buy and hold, can be a strategy, but it is only one of many. This is the key difference. "Trading only has 1 strategy.........follow the price trend, in whatever timeframe you choose.
Investing, however encompasses many different strategies, timeframes.
I concede that you may wish to call these trading strategies, due to the question of timeframe, and thats fine, possibly then a better seperation would be,.........
PRICE SPECULATION as opposed to INVESTING.
Trading, after all is a description of "what happens" rather than a philosophy.
As I originally stated, "investing" is an open ended situation in my thinking. I may invest in a stock because I believe the company's growth prospects to be outstanding, and therefore I expect price appreciation
We then have the factor of analysis.
This is really the crux of the differentiation. Speculation is the exact prediction of the future course of price in a specific timeframe, and must be proven either right or wrong, via numerous methodologies classified under technical analysis.
Investment is the analysis of the business, via accounting methodologies, and ignores the market fluctuations in price. Profit can be realised in numerous different ways.
The selling point would be determined when my ongoing process of analyzing the company altered my opinion of the company or the stock's ability to continue appreciating. That could be tomorrow, or in ten years, or never. The price could be the same, higher, or lower than when I bought.
Agreed, to a point.
The difference however lies in, most businesses will mature at a point in their lifespan, some may be cyclical, etc. Part of the analysis is to determine the "type" of business, and ascertain the value paid, to calculate the value to be gained, and exit when full value is obtained.
Perhaps a better example would be real estate. Investing would be buying a property with positive cashflow which you expect to hold for a long time, but which you might sell if a really good offer came in, in the tax situation changed or expenses increased. Trading real estate would be "flipping", whereby you purchase a distressed or undervalued property, maybe fixed it up a bit, then turn around and sell it at a higher price within a short period of time. In the first case, you have no preset selling time horizon or price, but will react to changes in the market and/or property, while in the latter you expect to be out within a specific time.
Your real estate analogy rests on the adding of value to realise an appreciation in price.
This is not trading to my mind, but investing. You through your analysis have recognised that the house, apart from appearances, is undervalued, by adding paint, you realise, or release that value.
This is exactly the principal of value investing.
Trading......or speculating relies on the greater fool theory......that you pay $10, some greater fool will pay you $11. And so it goes, until whoever buys at $100 is in for much pain, when it reverts to $10.........if of course they hang on.........which no-one in their right minds would......would they?
Cheers d998
