**The Difference Between Trading and Investing — Transcript & Summary | SozAI** Source: https://sozai.app/transcript/difference-trading-investing/ Explains the key differences between trading and investing, focusing on timing, analysis, and risk. ## Key Takeaways - Investing is a long-term strategy based on company growth and intrinsic value. - Trading is short-term, focused on price fluctuations and technical analysis. - Trading is riskier and requires a different mindset and skill set than investing. - Most people are better served by investing rather than trading. - Traders often do not consider the company’s fundamentals, unlike investors. ## What the video covers - Trading and investing are often confused but represent very different approaches to the stock market. - Investing is a long-term strategy focused on gradual appreciation of a company's intrinsic value. - Trading involves frequent buying and selling to profit from short-term price volatility. - Investors focus on intrinsic value, while traders focus on stock price movements and technical indicators. - Traders often use short timeframes, from seconds to months, and submit many trades compared to investors. - Investors may be passive or active, but both rely on the company's fundamental growth over time. - Trading requires a fast-paced, competitive mindset and often involves bluffing and hiding intentions. - Trading is high-risk, often involving leverage and exposure to short-term volatility. - The video warns that while trading can be alluring, it is generally best avoided by most individuals. - The video is sponsored by Squarespace, offering a discount on website and domain purchases. ## Chapters 1. 00:00 Introduction and Sponsorship 2. 00:38 Trading vs Investing Overview 3. 01:20 Definitions and Differences 4. 02:00 Roles of Traders in Firms 5. 02:42 Investing Time Horizons 6. 03:25 Trading Styles and Frequency 7. 04:06 Stock Price vs Intrinsic Value 8. 04:48 Investor Approaches to Value 9. 05:28 Trader Analysis and Techniques 10. 06:09 Summary of Differences and Mindset Answers ## Questions about this video What is the main difference between trading and investing? Investing is a long-term approach focusing on the intrinsic value and growth of a company, while trading involves frequent buying and selling to profit from short-term price movements. Why is trading considered riskier than investing? Trading exposes individuals to short-term volatility and often involves leverage, making it a high-risk practice that requires a fast-paced mindset and skill to succeed. Do traders consider a company’s fundamentals when making decisions? Generally, traders focus on stock price movements and technical indicators rather than the company’s fundamental operations, often trading without deep knowledge of the business. ## Full Transcript — Download SRT & Markdown 00:00 Speaker A This video is sponsored by Squarespace. Go to squarespace.com/sasha the plain bagel to save 10% off your first purchase of a website or domain using code THEPLAINBAGEL. If I were to ask you about stock trading, this would 00:12 Speaker A probably be the image that comes to mind: the New York Stock Exchange trading floor, a scene synonymous with stock investing itself. This is where traders meet in person to buy and sell stocks, finding deals for their clients and 00:26 Speaker A employers and yelling tickers and prices across the trading floor. Well, this used to be how most trading was done. These days, you can do most of the work online, and advancements in technology have even allowed everyday individuals to take up 00:38 Speaker A trading at home to try and make money. But despite the fact that trading involves stocks and other investments, it is often seen as a very different practice from investing, what you or I probably do when we buy or sell stocks. 00:51 Speaker A You see, being a trader, whether professionally or as a hobby, is different from being an investor. And while you've probably heard of people making quite a bit of money off trading, it's an area that most people are best 01:04 Speaker A served avoiding. Why? We'll answer that question and more on today's Plain Bagel. If you look at the literal definitions of the terms investing and trading, you probably won't grasp the difference between the two. After all, investing is the act of 01:20 Speaker A spending money with the hope of generating some larger benefit or return in the future, while trading is the act of buying or selling investments. It's not very clear how the two differ. In fact, there is no technical distinction 01:32 Speaker A dictating what counts as trading and what counts as investing. But the terms are often used to refer to two very different approaches to making money from investments. An investor is someone who places their money in something and looks to profit from that asset growing 01:46 Speaker A over time, whereas a trader is someone who makes money in the short term by buying and selling stocks frequently. In other words, while one relies on gradual appreciation, the other focuses on market volatility. Now, being a trader can mean a 02:00 Speaker A number of different things. Many companies actually hire traders to help them carry out their investment decisions. For example, an investment firm may decide they want to own shares of Plain Bagel Co., so they'll hire a trader to help them get the best price for the 02:12 Speaker A shares. In this video, however, we'll be focusing on traders who operate with the sole objective of making themselves money. And there are two main areas where in this practice differs from investing: the timing of trades and the analysis of 02:26 Speaker A stocks. For timing, as we mentioned, investing is typically a long-term strategy, whereas trading is more short-term. When you invest in a stock, you're betting that over time the company will grow, either by expanding its asset base or its profits. You can 02:42 Speaker A invest in a company for as little time as you want, but generally speaking, you'll be aiming to sell the stock two, five, ten, even 30 years from now. On a day-to-day basis, the price of a stock may 02:53 Speaker A fluctuate, and indeed some investors try to take advantage of that by buying when the stock's price is abnormally low. But once the purchase is made, the focus tends to shift to the long-term movement rather than the short-term volatility. Trading, on the other hand, is the fast 03:09 Speaker A and furious approach. It involves buying and selling the investments to take advantage of short-term price swings. Day trading, for example, involves individuals buying and selling stocks the same day, while swing trading expands the process to a few weeks, months, or sometimes years. 03:25 Speaker A There are other styles of trading as well, but they all tend to fall under fairly short timeframes, sometimes even making buys and sells within a matter of seconds. Because of this, traders submit many more trades than investors and often cycle through many 03:39 Speaker A more positions. But selling something shortly after buying it doesn't alone make you a trader. So let's move on to the second point of distinction: the analysis. To understand how the analysis of a company and its stock price varies 03:52 Speaker A between traders and investors, we first need to explain the difference between a stock's price and its intrinsic value. Theoretically, the price of the stock only reflects the number of buyers and sellers trading that stock at that given point in time. 04:06 Speaker A And past the stock price, there's some intrinsic value, a true worth of that stock that only an omniscient being would know. Over time, the price of the stock should track closely to this intrinsic value as buys and sells 04:20 Speaker A factor in company information known by the investors. But human factors like fear or greed might lead a stock's price to deviate from its actual worth from time to time. Within the world of investing, people take two approaches to this information. Passive investors 04:34 Speaker A ignore short-term fluctuations in stock prices and look only to benefit from the rising intrinsic value, knowing that even if they do buy an overpriced stock, they should benefit in the long term as the aggregate market grows. Active investors 04:48 Speaker A instead try to estimate a stock's intrinsic value so that they can buy the stock for less than it's worth, allowing them to benefit not only from the rise in intrinsic value but also from the return of the price to its 05:00 Speaker A intrinsic level. While these two approaches vary from one another, they both generally depend on the intrinsic value of a stock increasing. Traders, on the other hand, only care about the stock's price. There is no attempt to estimate the intrinsic value of their 05:14 Speaker A stocks, and indeed many traders buy and sell stocks without even knowing what the company does, looking only to take advantage of the short-term swings or trends in its stock price. For this reason, it's common for traders to focus 05:28 Speaker A their analysis on technical indicators. These are measures and gauges that only take into account historical pricing information to help the trader determine whether there's a developing trend or pattern that they can quickly exploit. It's the graphs and charts you imagine when you 05:43 Speaker A think of a professional trader sitting in front of their four screens buying and selling stocks. Now, some traders do incorporate qualitative information into their research as well, but it is usually only to take advantage of a short-term shift that they're expecting in the 05:57 Speaker A stock's price. For example, if a trader finds out that a company is announcing news tomorrow, they may decide to buy the stock with the belief that the company's announcement will be positive, leading to a jump in the stock's price. In either 06:09 Speaker A case, traders generally only focus on snippets of a company's information rather than trying to develop a broader understanding of the firm's operations. So those are the two primary ways trading differs from investing. It 06:23 Speaker A requires a very different mindset. It operates in a very fast-paced, competitive environment. Some would even argue that it requires a fair amount of bluffing. This was more so the case when traders used to talk in person about the stocks they wanted to buy and sell, but 06:36 Speaker A even today, traders often try to hide their true intentions when they submit an order. After all, if you can convince other traders that you don't want to buy something, you may be able to get it for a lower price. Just like with anything 06:48 Speaker A else, all of this can make trading a very alluring practice for young investors. I mean, competition, fast trades, quick payoffs, it's got it all. And with all the ads we see online of millionaires and their private jets explaining how they 07:02 Speaker A went from zero to hero with their $300 trading strategy, it probably seems like a fairly easy field to enter. But trading is a high-risk practice. Most traders put a lot of money behind their individual trades, sometimes even borrowing to 07:16 Speaker A leverage their returns, which exposes them quite heavily to short-term volatility of individual positions. It also requires a lot of effort and time. Many trades only end up yielding a fraction of a percentage point, meaning traders are continually rolling their 07:31 Speaker A money into new positions. 07:46 Speaker A competing with industry professionals with Kobe amounts of money cutting-edge research and even industry best algorithms I can trade faster than you can say the word stock it's just not a fair fight now I'm not saying you can't make money trading 08:00 Speaker A there are people who make a full-time living from their home with trading activities in some companies even offer salaried positions for traders like we mentioned earlier so there are some merits to the field but trading is a lot 08:14 Speaker A like playing poker you can be very good at it and indeed some people do make a living from it but there's a lot of chance involved with other great players at your table the odds are often not in your favor so 08:25 Speaker A any advisor will probably tell you that investing is the better way to go for the average person like Harry no more comprehensive research and holding over the long term you're more likely to benefit from the broad growth of the 08:37 Speaker A economy and the stock market as a whole sure you won't get that same rush as a tripled levered buy on an out of the money put option but that's probably for the best after all if you're looking for 08:49 Speaker A the rush of high-stakes and not so great odds you may as well go to the casino at least there you'll get free drinks thanks for watching if you like this video make sure to hit the like button if you like what we're doing here make 09:00 Speaker A sure to subscribe hit the bell icon if you want notifications about future videos if you have any feedback or topics you want me to cover in a future video leave a comment down below for the plain bagel my name is Richard coffin 09:10 Speaker A thanks for joining me today so perhaps your trading venture isn't going to bring you the success and fortune you were hoping for but maybe you have your own business you're trying to gain traction with or maybe you're looking to 09:21 Speaker A get your name or your work out there for people to discover well there's no surefire way to achieve success there's no denying that having a website can help you with whatever you're working on and today's sponsor has a great 09:32 Speaker A all-in-one tool to help you build your online presence Squarespace is a website builder with one of the best structured editors in the space you can pick from one of over 70 themes and just drop your own content in so you don't need a 09:44 Speaker A graphic designer to end up with a professional-looking website they've also got a bunch of features including email campaigns and appointment scheduling and e-commerce capabilities that allow you to sell products through your page I use Squarespace for my own 09:56 Speaker A website and I find it really easy to use but don't just take my word for it you can try their page builder yourself for free and if you do decide to launch consider using coupon code the plain bagel 10:06 Speaker A it will save you 10% off your first purchase of a website or domain and they'll support the channel so if you're looking to share something with the virtual world do it with Squarespace Topics: trading investing stock market stock trading long-term investing technical analysis intrinsic value day trading swing trading investment strategy --- This is the markdown twin of https://sozai.app/transcript/difference-trading-investing/ — the same content, without the markup. 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