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In the end all that matters is that your method makes money over time. This is a function of your win rate, average gain and average loss. Traders rapidly buy and sell a stock many times, Investors buy a stock once and sell it once after many years.
But also investors are interested in the actual value of a company (fundamentals, revenue growth etc) while traders are interested in the market’s valuation of the company. For example, if the company’s value remains unchanged but it gets false bad coverage which will later be clarified the market valuation will drop and then recover, and then traders will have a field day!
Personally, with guidance from an accredited seasoned expert I am a profitable swing trader! I consult both fundamentals and technicals before placing a buy. I want to see excellent earnings, revenue growth, margins and fund ownership. Then I look to buy a company as it is breaking out of a consolidation pattern showing excellent demand and little supply. If a company is so strong funds should be buying it and this will show up in the charts, all you have to do is ride the wave. The end goal is the same for all styles, profit from the great companies of the world!!!
Trading seems like "gambling" to me because it is so difficult to predict how a stock will move quickly. I have tried several methods and they always backfire resulting with nothing but losses.
That’s categorically false. Perhaps you lack the right information to get things to make sense! This is what I do. I’ve been profitable for two years now. Last year income was $183K. This year I’m at $303K so far.
Account size prevents Buffet from “trading”. When you move billions you can’t jump in and out without moving the market against your position . It’s like maneuvering a cruise ship vs a sports car. I think active trading starts falling apart at the 40 to 50 million mark. Eventually you have to move slower and hold. Good video, thanks!
Our host talks about this in his video about performance chasing: ARK Invest tries to invest in small companies with billions of dollars, but their own buys & sells drive the price of their investments.They only come out ahead if the company is a runaway success
I think investing is buying a business for the fundamentals and then sticking with your thesis no matter what the market does. Buying and holding is not necessarily investing, if something changes with your thesis you can of course act on it but the important thing for me is to not pay attention to short term noise. Trading is being focused on price fluctuations instead of the fundamentals. That's what I think!
I once actually stood in the NYFE pit in Bldg 4 of the WTC during a session Paul Mann allowed me to stand there, no blinking, no looking at anyone directly, no nothing It made short-term trading look like Bingo night at a retirement home. I think the idea is that you bet at six derivatives of separation on an underlying option on... something.
I didn't understand all aspects of this video but feel just a little bit smarter for watching it. Patrick is smashing out some of the best quality videos on TH-cam. Thank-you
I dunno, I feel like Smith's invisible hand has been debunked in so many ways, yet here it is in a youtube video, so much cheap propaganda for capitalism... the people who benefit from the inequality of the system are the ones who contrived these lies...
This is especially true over the last couple of years that I've been interested in the stock market, the whole thing became a casino. Properly educated traders help prices find correct levels but when they are swamped by gamblers who were given free money and could leverage up at very little cost using free apps on their mobile phones it just got ridiculous .
Buffets real point is that he despises short trading, but only the type of trading he doesn't do, for make no mistake, he is way to active in the stock market to not be considered a swing trader
Hey Patrick, I'm currently studying Finance at University. I just wanted to say your content makes me enjoy my degree even more, so keep up the golden content!
What an incredibly level-headed approach to this argument and giving words to those of us who couldn't quite figure out how to articulate the nuances you describe here so well.
Speculation: the struggle of well-equipped intelligence against the rough powers of chance. No truer words. Imagine taking a buy low sell high strategy that is right 60% of the time and then going on to lose the next 10 trades. That is just mentally difficult to process. Speculating is really a difficult game to play.
I think one reason that trading is regarded less is that it is often a zero sum game between all the traders at least much more often than in investing. If you hold a broad index fund for 40 years you can expect profits with an extremely high probability. If you make short term trades for 40 years there is no such guarantee.
If we're talking about retail trading/investing in stocks, the common sterotype is mostly correct. Retail stock trading is mostly buying/selling based on chart patterns which show probablilities that are mostly routed in sentiment rather than fundamentals. Most retail stock traders lose money. Retail stock investing is seeking to profit from either the growth in the value of a company, as its profits grow or through sharing in the profits, paid as dividends. In many cases, it's a combination of both. The buying and selling decisons are usually based on fundamentals (long-term) rather than sentiment (short-term). This is much easier to predict and most retail investors make money. Ideally, you should only buy shares if you're willing to keep your money in shares for a minimum of 5 years, ideally, 10+ years. I do both (around 90% investing 10% trading). I keep the two disciplines mostly separate and although there is some overlap, I never confuse the two approaches. Not a good idea!
Wow. This was a really insightful video. I had the opinion that trader activity was a waste of human capital, since the trader could be working as a productive member of society. This video changed my mind with respect to that, now I see why traders are actually providing a useful service to society through liquidity and price regulation. Thanks for your expert take on this topic!!
keep in mind it's exactly the argument Gordon Geko made. If you look at the LTCM collapse right to the end Haghani maintained they were a positive force in the market as they were providing greater efficiency
Most traders I know have a complete disdain for any type of authority. I would almost consider then unemployable in a normal job outside the markets. .
One of Buffet's trading rackets are options on the weather. A payout is given based on the size of hurricane that lands in a given area. Buyers of these options are usually insurance companies who will need that money to pay out insurance claims. A sort of insurance for insurance.
Yeahhhhh !!! I like this ! I feel like Patrick is here for all of us active traders !!! Good points Patrick. Spread as a silent commission is really an interesting point. I made the calculation once and I was astonished by how much does that cost.. And we are not talking about some extra costs such as overnight fees. So in conclusion, yes, trading is challenging and there is a toll. And I do appreciate that Patrick is here to say: yeah, traders also do their analysis but a different one...
I like Buffett's definition which goes something like: Investing is placing your valuables in an asset in the expectation that the asset over time will produce a return that in present value aggregate exceeds the initial input. Speculation (including trading) is placing your valuables in an asset in the hope that the asset itself will go up in value. (I like doing both)
@@musaran2 Sure, and I don't see any contradicktions with Buffett's definition of speculation in what you say:) Gambling is creating risk that would otherwise not have been there according to Buffett and most others I've heard. If you sit down at a black jack table there is no risk before you make a bet so that risk is created out of thin air right there, and that's gambling.
@Lai Bladen Do you use the service of a Market/Risk expertise. TH-camr pretending to be an investor, like 99,99% of all TH-camrs these days, parroting other people who also know nothing. I have yet to see any TH-camr provide any evidence in their fantastical content
My only problem with a decentralized system is that governments don't want that....I'm not saying it's not possible but it's just unlikely...I personally believe government's will bring the hammer down on Bitcion because it's attacks their ability to mismanage the current
My distinction was that Traders place orders on behalf of other investors like manufacturers, importers, commodity companies, or mutual funds trying to get the best price within a few days or weeks, while realizing their strategies/goals/cash in or outflow.
They are also called Traders but more for an institution as per mentioned in your comment. This is because these organisations have their own research team that help generate trade ideas. But it varies of course firm to firm.
The problem is that most people pay more attention to the shiniest positions on the graph trying to jump in and out. Seek proper financial guidance from a licensed professional more so one with experience of the past bear markets. Having monitored my portfolio performance return huge six figures in the last 2 quarters, I have learned why experienced traders make enormous returns from the seemingly unknown markets. Thanks Patrick
I've got a small account I manage myself, taken some positions over the past few months but the truth is that i barely know what I'm doing. I'm in need of a good investment plan currently, I have a lump sum of $500k+ in a savings account yielding next to nothing.
@@rodneycahoon8604 I have my funds well diversified by using trade signals from my investment advisor Susan Lynn Hoyt a US registered CFA who you might have heard about or seen in the CNBC news and tbh it's been a huge relief. Highly diversified portfolio, mind blowing earnings and little to no engagement at all on my part. My aggressive portfolio returned almost $200k in Q2.
@@keirgordon5147 That's a lot of money. I'd love to start moderate and maybe advance to aggressive. Do you just give her your money or copy manually? I have a full time job. And what does Susan Hoyt charge for her services?
@@rodneycahoon8604 You don't give out funds here. My account only mirrors her trades in real time that's the ideal for this system. The lady I just recommended is a renowned advisor and knows what the heck she's doing. Check her out and get in touch if you'd need help. Charges 10% of profit.
Really good video, it's important that beginners know these basis strategies that can assist them with their trade career. It requires a lot, I guess many make losses due to lack of skills to handle their tradings.
True, most time you need to recognize the existence of a speculative factor and that is the duty of an expert to guide you on the right profitable stock to buy or invest in.
The first time I ever tried trading was in 2018, I had losses and stopped, I only started earning this year, when I got a credible broker Tim Taylor. Tim has been the one in charge of my account. I'm still learning, but I'm earning great profits weekly.
I think Mr. Boyle's definitions agree with mine: Traders attempt to profit off of the trade and investors profit off the passage of time. That is an important distinction. I am old now and traded - stocks, for a short period of time and ten turned to investing - S&P 500 and NASDAC index finds. At the end of 2022 I was content that my assets were up 13% annualized since the start of 2019. More than I expected in the short term, It is too bad that the economic news tends to relate to the short term and encourages people without the necessary knowledge to trade rather then to invest.
I HAVE INCURRED SO MUCH LOSSES TRADING ON MY OWN...I TRADE WELL ON DEMO BUT I THINK THE REAL MARKET IS MANIPULATED... CAN ANYONE HELP ME OUT OR AT LEAST TELL ME WHAT I'M DOING WRONG ?
I go with Graham's definition (which is most likely similar to what Buffett must be thinking about). “An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.” - day trading is, on the other hand, a zero-sum game (negative-sum if you take fees into account). Thus, day trading can not be investing, as someone is necessarily losing principal. Note that Graham DOES talk about "special events" and, on a high level, merger arbitrage as an investment tool in his book. I don't think this kind of trading is what Buffett was referring to. Instead, he's most likely talking about retail traders which are mostly not successful.
Fantastic video! I've always struggled with the distinction between trading and investing, but your explanation made it crystal clear. Your knowledge and insights are truly valuable and I'll be sure to share this with people I know who might find it interesting. Thank you for sharing!
Great video and explanation. As a small retail investor, I do not venture into trading I simply do not have the time and knowledge. I do like to learn about trading and how traders think about risk. I believe this will complement my investment thinking.
Better to think of it in terms of taxation because that's the practical way to look at it. A trade is a trade. To start an investment you do a trade and to end an investment you do the reverse trade. Investors do trading. Or, there are people who have capital gains income either long term or short term, as defined by the tax code. Investors will pay long term capital gains taxes, but some "investors" do not consider one year to be long at all despite it being taxed as long term capital gains after one year (for US).
*The reality of the rich and the poor is this: the rich invest their money and spend what is left. The poor spend their money and invest what is left"*
How Patrick speaks looks similar to the trading charts ....romantic ⬆️ ....investing⬆️ ....capital ⬆️ ...return ⬆️ ...every word at the end of the sentence is going up .... rarely goes down ⬇️
As I recall there are a few studies that do indicate price convergence toward intrinsic value over a 3-year period. But yeah the tax and compounding benefits of holding for a long duration of time. I can understand why long-term value investing would be unattractive to hedge funds though, they generally have shorter-term obligations to their clients so can't just hold for 10 - 20 years lmao.
Also thanks for letting me know that no commision brokarages are actually better for large caps. Only thing they're tax inefficient / problematic when you're from outside the US
One of the biggest reasons the government promotes buy-and-hold strategies for stock market trading, is that tying up so much currency into the stock market prevents it from reaching general circulation, and making consumer prices rise. In short, it allows the government to inflate the currency much more than they might have otherwise, and deflect blame for the market discoordination that results. It's not a coincidence that the preferred method of introducing new money to the market is through the Fed and its "open market operations."
Is it possible to elaborate on the phrase "many wealthy investors never sell their stocks. they just borrow against it". If they are ever asked to repay the debt or reach a limit for the minimum payment that would put them in a higher tax bracket, would it not be worse in terms of taxes to sell a large amount the portfolio to cover the loan principal? Example: I want 100K walking around money -- borrow 100K and pay 2K interest(per year) - lower than taxes but only if i keep the debt for less than 10 years since interest it's 2%. But I now carry a liability, which i didn't have before. - so now I have 102K debt that I need to repay = i need to sell stock for [100K + taxes + interest to cover the loan]. -- sell stock normally - sell stock for [100K + taxes] so, according to my math = [100K + taxes] LOWER THAN [100K + taxes + interest] so what is the idea: - i will be in a lower tax bracket than today - i will forever hold a debt to the bank, growing each year and eventually surpassing taxes - allow the "saved" taxes to grow in the portfolio. But still, when i realize this growth, taxes are due.
The only difference is time, if there is any difference at all. It's all speculation based on observations. Also trading commissions and spread are part of the cost factoring when choosing the vehicle for the trade and aren't relevant as a disadvantage when discussing trade duration. Much like discussing fuel costs when considering transportation services. Of course you have them and they are factored in the deal. They are not considered an advantage or disadvantage, just a variable.
Watching all the spam craze for trading crypto and thinking perhaps they can all become traders, then Patrick making a video about which books to read on how to become a trader, further embolden my convictions the spam craze is just a scam.
I'm one of those who do both. Some stocks are for swing trading, some for investment. Not many "value" stocks perform as we expect it. I've lost a lot money a while back by investing in good companies like Intel etc, all the research told me they were solid... well, now I prefer investing in growth.
8:20 I learned that the hard way, when i calculated i had payed around $30,000 in a month in trading fees (trading crypto). I did make a lot more, which wouldn't have been possible without the buy & sell, but still....
Do what you have knowledge and fits your psychology.I tried trading just didnt enjoy it.I also dont buy and hold forever.For me I enjoy contrarian investing.I love buying unloved and selling loved things.Thanks for the video.
I appreciate that you point out what commission free trading... nothing is free...fees are built in. Well said on the contrast and perspectives comparing methods - pro and cons of each. long term is the safest route, however sometimes there are sometimes there are times that call for short term.
What does trading have to do with supply chains? The logistics of supplying countries with the products they need aren’t decided by day traders trading stocks and bonds. Whether there is some moral good or not I don’t really have much of a view on. But generally, short term trading in aggregate is a zero sum game whereas at least in principle investing isn’t, as over time economic growth will tend to push up the value of equities (not all of them of course, and not by the same amount either). There is also an inherent assumption here that traders don’t have sufficient market power to distort prices - whereas we know that the drive to generate short term returns has led some to engage in market manipulation in a variety of ways. And rose tinted goggle stuff like creating “harmony and freedom” I can do a bit less of.
statistical analyses of short term versus long term returns that I have seen always seem to show a net negative on short terms when accounting for trading costs and capital gains tax implications. While some traders might do very well, they seem to be in the minority. A well balanced long portfolio seems to have better chances of actual gains versus actual loss over time. This is especially true if you invest in index funds that track broader market indices and are less vulnerable to the wild swings or complete loss that individual stocks might have.
I think a key differences is that Everyday Joe can be a successful long term investor (by simply holding index funds etc.) However the average person will find trading much more difficult to make successful without access to the skills and resources that Patrick describes.
One must also justify putting in more time with investing / trading. Since time is money. If the time spent returned no better than the market, then it's a complete waste of time as someone mindlessly lump sum / dollar cost averaging into an index fund doesn't need to know anything about stocks. Most investors do not beat the market, so what exactly are they striving for? To be in the 10%? One misconception is that institutional investors try to beat the market, which isn't true. They just try to beat inflation and not lose money for their clients. So in a sense some of them may be seeking to take less risk than an index fund. And thus only returned around 6% annually over the past 10 years or so.
Thanks for the great content! I was wondering if you could do a video on describing the different roles at quant funds (Quant Researcher, Quant Developer, Quant Trader)?
Gambling is usually defined by being dominated by some form of pure randomness, while trading may be subject to similar arbitrary variations, those variations are supposed to be caused by highly nonlinear but causal relations.
My viewpoint is that (especially short-term) retail trading should be activelly discouraged. The likelihood of being long-term profitable there is nearly zero. Now compare that to the likelihood of profit in long-term holding of index fund or any wide-market ETF.
Always enjoy listening to you. 2 comments. I have often heard the idea of trading being compared to gambling.I disagree with that opinion because gambling has a defined and set outcome based on time or a specific event, as a trader, You do not have to trade according to time or event unless you're trading options. Therefore you could hold on to your security if it's out of the. Money and allow it time to return. Hence the major difference between gambling and trading. 2nd cost associated with trading I consider as the cost of doing business. There is no business that does not have A cost associated with it. The average product sold on the market has a gross margin of approximately. 35 to 50%. If you have a gross margin on trading of an average of 90%. I think you are substantially ahead of the game.
Theres a wide overlap between investment and speculation. To me, the hallmark of pure investment is something that Patrick does not mention in this video. This is the intention to put your money where it will actually do some good, i.e. create real value, i.e. solve a real problem. Pure speculation, on the other hand, is to buy something that has no intrinsic value and that solves no kind of problem, except a perceived shortage of money. The axe I use for chopping down my firewood is an investment. The shares I buy in Borregaard are the same. Bitcoin, on the other hand, is pure speculation.
Mr. Boyle find all of your videos very informative and helpful. WISH YOUR BOOKS WERE AVAILABLE AS EBOOKS! You should have your publisher offer them in that format. Well done. 👍🏻
It's all trading. Even on a "buy and hold" strategy, there will come a time you will want to, or need to, sell. The term "investing" is misused. Technically, investing is incorporating a capital good into a production process, which ultimately culminates in the sale of some final good or service. That capital good can be machinery/tools, land, training/practice, or knowledge/research. It can also be raw materials used as inputs (seeds, minerals, chemicals, foodstuffs, herbs/spices/flavors, etc.). Purchasing a shovel and using it in a road paving business, is investment. Subsequently reselling that same shovel to someone else, even decades later, is trading.
Stock traders are certainly investors, but not in the way most people think of the term. They invest in information-gathering, they invest time and training in a trading strategy or system, they invest in a trading platform and brokerage account, they invest in computer hardware, and the money they trade with serves as raw material for their trading businesses.
I have pondered this for quite a while, the truth is trading and investing are exactly the same in principle but they happen over different time frames. Trading is fast investing and investing is slow trading. If the principles of the trading or investing system are flawed the system will eventually fall apart unless you are Warren Buffett and your butler tips you off to sell all your airline stocks before world governments stop international travel, in this case you can be swimming naked even when the tide goes out.
You could say that if you're somehow able to trade with 100% borrowed capital then you're trading but not making a net investment (unless and until you reinvest the profits you're hopefully getting). Most traders are probably investing at least partially their own capital or the capital of someone else on behalf of whom they're trading.
I started as a trader and switched to long term investing. The main reason is that I couldn't do proper trading while advancing in my current job. Professional trading is a full time job
Were you a proprietary trader? It is true that its a highly specialised area without much scope for advancement if any at all. At the end of the day its purely P&L driven, no profit, no salary. Hedge Fund employees on the other hand have AUM fees to provide a basic salary for employees.
@@pennyhardaway7491 never been a proprietary trader. I only wanted to hedge against inflation with profit earned by trading. At the end it consumed all my time
It seems to me that it would be a mistake to make a clear cut distinction between a trader and investor. If someone calls themself a "day trader", then it is clear that they trade their stock on a daily basis. An investor like Warren Buffett might buy stock and keep it for a year or more. But if I were to buy stock, I would prefer a middle ground - not keeping it for a day nor keeping it for a year. Maybe buy some that I keep for a week, some for several months and some for much longer periods. This kind of diverse trading doesn't really classify as "trading", nor is it "investing". What would interest me is who is more likely to get a better return after one year? A day trader, an investor, or someone who does it in between as I mentioned?
This is called Swing trading, the best traders of the world are swing traders. They cut their losses early and let their winners run over few weeks to months. Day trading has the least probability of success.
Who knew that an investment could be more than just a trade that moved against you? Fascinating stuff again Patrick. 😉 Can I suggest one on worker "shortages"? I've heard all kinds of theories from short term theories like Brexit (although the EU has similar issues), displaced workers due to Covid-19, people sitting on the sofa on social welfare (again, less convincing as those have been largely curtailed) and long-term demographic changes driving down the number of working age people as % population (actually looked pretty plausible when I looked into it!) 🤔
Even if a speculator has a good trading strategy aka edge of 50%+ win rate based on technical analysis - and if the rest is applied successfully i.e. risk management, trade management, good R:R - then more often than not they will have a positive equity curve.
In 2021 I have been hoping to make a start in Options Trading. I had to acknowledge myself, I do not have enough/any knowledge (nor experience). I am concerned to do it wrong, and simply lose premium. I suppose I need education, self education.
The best traders mostly insto trade a boring repeat setup and manage risk, but its very hard work 20% pa is a great return which requires super disclipine. The question you have to ask is who is richer Warren Buffett or someone like Mark Minervini who peddles trading courses and books.
I'm an investor and that's because I have no special knowledge and want to use a technique that doesn't require it. Buying and holding dividend stocks pays me while my portfolio grows. I sacrifice some price appreciation for higher income. I can use yield adjustment if the day comes that my income is inadequate. Or, if I'm super old I can adopt the hated "something percent rule". 🙂
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@Nuno Diniz Thanks, deleting those comments right now.
You sound like Margo St James speaking for COYOTE !!
possibly the most underrated financial channel. I have no doubt this channel will reach millions in subscribers in the future.
Patrick, do u work for a hedge?
Hi, could you please make a video on #TheAdaniSaga, thanks...!!!
In the end all that matters is that your method makes money over time. This is a function of your win rate, average gain and average loss. Traders rapidly buy and sell a stock many times, Investors buy a stock once and sell it once after many years.
But also investors are interested in the actual value of a company (fundamentals, revenue growth etc) while traders are interested in the market’s valuation of the company. For example, if the company’s value remains unchanged but it gets false bad coverage which will later be clarified the market valuation will drop and then recover, and then traders will have a field day!
Personally, with guidance from an accredited seasoned expert I am a profitable swing trader! I consult both fundamentals and technicals before placing a buy. I want to see excellent earnings, revenue growth, margins and fund ownership. Then I look to buy a company as it is breaking out of a consolidation pattern showing excellent demand and little supply. If a company is so strong funds should be buying it and this will show up in the charts, all you have to do is ride the wave.
The end goal is the same for all styles, profit from the great companies of the world!!!
Trading seems like "gambling" to me because it is so difficult to predict how a stock will move quickly. I have tried several methods and they always backfire resulting with nothing but losses.
That’s categorically false. Perhaps you lack the right information to get things to make sense! This is what I do. I’ve been profitable for two years now. Last year income was $183K. This year I’m at $303K so far.
Must be nice to have step-by-step patterns laid down for you by someone who has a good practical familiarity in this respective field
As a trader,I throw darts on a board. If I'm up 1% I take profit. If I'm down 10% I hold and become an investor.
I don't remember who said this but: "A swing trade is a scalp that turned bad... " :D
Bro you had me laughing so hard from that lol
That's it!
Then you realize it’s over 100 shares, and you become a delta hedged derivatives seller by messing with out of the money covered calls
lol. You are a double agent.
"The struggle of well-equipped intelligence against the rough powers of chance"
BRILLIANT!
Account size prevents Buffet from “trading”. When you move billions you can’t jump in and out without moving the market against your position . It’s like maneuvering a cruise ship vs a sports car. I think active trading starts falling apart at the 40 to 50 million mark. Eventually you have to move slower and hold. Good video, thanks!
Unless, for some crazy reason, you think that you're better at it than all those phds they're stacking up over at Renaissance...
Tbf that's what block trading is for
Our host talks about this in his video about performance chasing: ARK Invest tries to invest in small companies with billions of dollars, but their own buys & sells drive the price of their investments.They only come out ahead if the company is a runaway success
For me this was one of your best ever videos Patrick. Your passion knowledge and enthusiasm really shines through.
Thanks!
Agree.
Ditto ❤
@@PBoyle And you „overcame“ your bias very well I think! Really one of the best videos of yours. Wish it was longer!
I think investing is buying a business for the fundamentals and then sticking with your thesis no matter what the market does. Buying and holding is not necessarily investing, if something changes with your thesis you can of course act on it but the important thing for me is to not pay attention to short term noise. Trading is being focused on price fluctuations instead of the fundamentals. That's what I think!
I once actually stood in the NYFE pit in Bldg 4 of the WTC during a session
Paul Mann allowed me to stand there, no blinking, no looking at anyone directly, no nothing
It made short-term trading look like Bingo night at a retirement home.
I think the idea is that you bet at six derivatives of separation on an underlying option on... something.
I didn't understand all aspects of this video but feel just a little bit smarter for watching it. Patrick is smashing out some of the best quality videos on TH-cam. Thank-you
I dunno, I feel like Smith's invisible hand has been debunked in so many ways, yet here it is in a youtube video, so much cheap propaganda for capitalism... the people who benefit from the inequality of the system are the ones who contrived these lies...
I think buffet’s real point is that most retail traders have no biz in trading short term as they just trade on instincts and emotions.
The statistics bear that out.
This is especially true over the last couple of years that I've been interested in the stock market, the whole thing became a casino.
Properly educated traders help prices find correct levels but when they are swamped by gamblers who were given free money and could leverage up at very little cost using free apps on their mobile phones it just got ridiculous .
Buffets real point is that he despises short trading, but only the type of trading he doesn't do, for make no mistake, he is way to active in the stock market to not be considered a swing trader
Tell me you know nothing about trading without telling me
One of the few... one of only honest, educated, experianced people talking the truth... and with the skill of a headline entertainer... thanks
Hey Patrick, I'm currently studying Finance at University. I just wanted to say your content makes me enjoy my degree even more, so keep up the golden content!
Wow, thank you!
Yeah I’m studying a finance qualification too. You have an incredible way of explaining things. I genuinely wish you were my lecturer!
Sounds to me that Patrick should be help paying for some of your tuition
@@bestfriendhank1424 he could do tbf
What an incredibly level-headed approach to this argument and giving words to those of us who couldn't quite figure out how to articulate the nuances you describe here so well.
Speculation: the struggle of well-equipped intelligence against the rough powers of chance. No truer words. Imagine taking a buy low sell high strategy that is right 60% of the time and then going on to lose the next 10 trades. That is just mentally difficult to process. Speculating is really a difficult game to play.
A new Patrick Boyle video is my favourite part of the week
I think one reason that trading is regarded less is that it is often a zero sum game between all the traders at least much more often than in investing.
If you hold a broad index fund for 40 years you can expect profits with an extremely high probability. If you make short term trades for 40 years there is no such guarantee.
Future market and derivatives is 0 sum game.
Stocks aren't zero sum when you have share issues and buybacks.
Life itself is a zero-sum game. There's no guarantee you'll be alive for the next 40 years either.
Finally…someone…who give a direct point…thank you thank you…
I think there is no other video in TH-cam that has better clarified the debate between "trading" or "investing".
If we're talking about retail trading/investing in stocks, the common sterotype is mostly correct.
Retail stock trading is mostly buying/selling based on chart patterns which show probablilities that are mostly routed in sentiment rather than fundamentals. Most retail stock traders lose money.
Retail stock investing is seeking to profit from either the growth in the value of a company, as its profits grow or through sharing in the profits, paid as dividends. In many cases, it's a combination of both. The buying and selling decisons are usually based on fundamentals (long-term) rather than sentiment (short-term). This is much easier to predict and most retail investors make money. Ideally, you should only buy shares if you're willing to keep your money in shares for a minimum of 5 years, ideally, 10+ years.
I do both (around 90% investing 10% trading). I keep the two disciplines mostly separate and although there is some overlap, I never confuse the two approaches. Not a good idea!
Wow. This was a really insightful video. I had the opinion that trader activity was a waste of human capital, since the trader could be working as a productive member of society. This video changed my mind with respect to that, now I see why traders are actually providing a useful service to society through liquidity and price regulation. Thanks for your expert take on this topic!!
keep in mind it's exactly the argument Gordon Geko made. If you look at the LTCM collapse right to the end Haghani maintained they were a positive force in the market as they were providing greater efficiency
Most traders I know have a complete disdain for any type of authority. I would almost consider then unemployable in a normal job outside the markets. .
@@sspencer3356 Take away their clean water, food, home, healthcare. Force them to build all those things by themselves.
One of Buffet's trading rackets are options on the weather. A payout is given based on the size of hurricane that lands in a given area. Buyers of these options are usually insurance companies who will need that money to pay out insurance claims. A sort of insurance for insurance.
Yeahhhhh !!! I like this ! I feel like Patrick is here for all of us active traders !!! Good points Patrick. Spread as a silent commission is really an interesting point. I made the calculation once and I was astonished by how much does that cost.. And we are not talking about some extra costs such as overnight fees. So in conclusion, yes, trading is challenging and there is a toll. And I do appreciate that Patrick is here to say: yeah, traders also do their analysis but a different one...
I like Buffett's definition which goes something like:
Investing is placing your valuables in an asset in the expectation that the asset over time will produce a return that in present value aggregate exceeds the initial input.
Speculation (including trading) is placing your valuables in an asset in the hope that the asset itself will go up in value.
(I like doing both)
Hope is more like gambling.
Speculation is supposed to be backed by sound resoning.
@@musaran2 Sure, and I don't see any contradicktions with Buffett's definition of speculation in what you say:)
Gambling is creating risk that would otherwise not have been there according to Buffett and most others I've heard. If you sit down at a black jack table there is no risk before you make a bet so that risk is created out of thin air right there, and that's gambling.
This channel is underrated as hell
Most underrated YT'ber there is. Great work Patrick! Love your vids mate.
yup, I understood some of those words
Motivation for making this video: "so i took that personally"
Keep buying and investing in stocks or crypto and in the end you will enjoy your rewards. Soon BITCION $100,000
@Lai Bladen Do you use the service of a Market/Risk expertise. TH-camr pretending to be an investor, like 99,99% of all TH-camrs these days, parroting other people who also know nothing. I have yet to see any TH-camr provide any evidence in their fantastical content
My only problem with a decentralized system is that governments don't want that....I'm not saying it's not possible but it's just unlikely...I personally believe government's will bring the hammer down on Bitcion because it's attacks their ability to mismanage the current
@Lai Bladen Thanks i did a NetSearch on her out of curiosity and my findings on her surpass my expectations. I've drop words on her reachout.
Thanks for explaining what investing is Johnny Sins
Please do a video on volume profiles!
My distinction was that Traders place orders on behalf of other investors like manufacturers, importers, commodity companies, or mutual funds trying to get the best price within a few days or weeks, while realizing their strategies/goals/cash in or outflow.
They are also called Traders but more for an institution as per mentioned in your comment. This is because these organisations have their own research team that help generate trade ideas. But it varies of course firm to firm.
The problem is that most people pay more attention to the shiniest positions on the graph trying to jump in and out. Seek proper financial guidance from a licensed professional more so one with experience of the past bear markets. Having monitored my portfolio performance return huge six figures in the last 2 quarters, I have learned why experienced traders make enormous returns from the seemingly unknown markets. Thanks Patrick
I've got a small account I manage myself, taken some positions over the past few months but the truth is that i barely know what I'm doing. I'm in need of a good investment plan currently, I have a lump sum of $500k+ in a savings account yielding next to nothing.
@@rodneycahoon8604 I have my funds well diversified by using trade signals from my investment advisor Susan Lynn Hoyt a US registered CFA who you might have heard about or seen in the CNBC news and tbh it's been a huge relief. Highly diversified portfolio, mind blowing earnings and little to no engagement at all on my part. My aggressive portfolio returned almost $200k in Q2.
@@keirgordon5147 That's a lot of money. I'd love to start moderate and maybe advance to aggressive. Do you just give her your money or copy manually? I have a full time job. And what does Susan Hoyt charge for her services?
@@rodneycahoon8604 You don't give out funds here. My account only mirrors her trades in real time that's the ideal for this system. The lady I just recommended is a renowned advisor and knows what the heck she's doing. Check her out and get in touch if you'd need help. Charges 10% of profit.
Just found her official website I'll try to get in touch. Thank you
Really good video, it's important that beginners know these basis strategies that can assist them with their trade career. It requires a lot, I guess many make losses due to lack of skills to handle their tradings.
Most people don't put in pre-work required for profitable trading results and that draws attention to the huge looses of investors.
True, most time you need to recognize the existence of a speculative factor and that is the duty of an expert to guide you on the right profitable stock to buy or invest in.
@Clara Alexander
Who do you trade with?
@@scottjames7285 I trade with expert Tim Taylor, he's been my mentor and account manager and under his advisory I make good trade income.
The first time I ever tried trading was in 2018, I had losses and stopped, I only started earning this year, when I got a credible broker Tim Taylor. Tim has been the one in charge of my account. I'm still learning, but I'm earning great profits weekly.
I think Mr. Boyle's definitions agree with mine: Traders attempt to profit off of the trade and investors profit off the passage of time. That is an important distinction.
I am old now and traded - stocks, for a short period of time and ten turned to investing - S&P 500 and NASDAC index finds. At the end of 2022 I was content that my assets were up 13% annualized since the start of 2019. More than I expected in the short term,
It is too bad that the economic news tends to relate to the short term and encourages people without the necessary knowledge to trade rather then to invest.
I HAVE INCURRED SO MUCH LOSSES TRADING ON MY OWN...I TRADE WELL ON DEMO BUT I THINK THE REAL MARKET IS MANIPULATED... CAN ANYONE HELP ME OUT OR AT LEAST TELL ME WHAT I'M DOING WRONG ?
Trading with an expert is the best strategy for newbies and busy investors who have little or no time to monitor trade
I will advice you should
stop trading on your own if you keep losing and start trading with Mrs Laura Morgan trading services
I lost £1200 carelessly trading on a
platform then I was referred to Mrs Laura Morgan she recovered the loss and made an extra profit of £4600
Wow I'm just shock you mentioned and recommended Expert Mrs Laura I thought I'm the only trading with her
@@peterdebra1882 You don't need to be shock because I'm also a huge beneficiary of expert Mrs
Laura
I go with Graham's definition (which is most likely similar to what Buffett must be thinking about). “An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.” - day trading is, on the other hand, a zero-sum game (negative-sum if you take fees into account). Thus, day trading can not be investing, as someone is necessarily losing principal.
Note that Graham DOES talk about "special events" and, on a high level, merger arbitrage as an investment tool in his book. I don't think this kind of trading is what Buffett was referring to. Instead, he's most likely talking about retail traders which are mostly not successful.
Fantastic video! I've always struggled with the distinction between trading and investing, but your explanation made it crystal clear. Your knowledge and insights are truly valuable and I'll be sure to share this with people I know who might find it interesting. Thank you for sharing!
Love this explanation.
Great video and explanation. As a small retail investor, I do not venture into trading I simply do not have the time and knowledge. I do like to learn about trading and how traders think about risk. I believe this will complement my investment thinking.
Better to think of it in terms of taxation because that's the practical way to look at it. A trade is a trade. To start an investment you do a trade and to end an investment you do the reverse trade. Investors do trading. Or, there are people who have capital gains income either long term or short term, as defined by the tax code. Investors will pay long term capital gains taxes, but some "investors" do not consider one year to be long at all despite it being taxed as long term capital gains after one year (for US).
*The reality of the rich and the poor is this: the rich invest their money and spend what is left. The poor spend their money and invest what is left"*
This is the kind of information that we don’t get from most youtubers..
@@maxrichard3905 I could invest in Crypto but always got confused by it’s volatility in nature
@@hugomorrison1200 That won't bother you if you trade with a professional like Mr Michael Robert.
@@tobbygraham8334 Count me in, I’m placing my trades with Expert Michael Robert ASAP
@@harrystyles.4318 Trading crypto with Michael is life changing moves
couldn’t agree more
4:44 Well played.
Transaction cost for short-term traders is like operating costs for a normal businesses. That's part of doing business.
Thank you so much for an eye opening exposé! You're debunking so many myths! Fantastic
Thank you for publishing this high quality content Patrick. I've learned a lot from watching your videos!
I've always understood investor to be the consumer who invests their money and a trader is a professional who works the invested money
How Patrick speaks looks similar to the trading charts ....romantic ⬆️ ....investing⬆️ ....capital ⬆️ ...return ⬆️ ...every word at the end of the sentence is going up .... rarely goes down ⬇️
I wonder if he ever listens to his own voice?
As I recall there are a few studies that do indicate price convergence toward intrinsic value over a 3-year period. But yeah the tax and compounding benefits of holding for a long duration of time. I can understand why long-term value investing would be unattractive to hedge funds though, they generally have shorter-term obligations to their clients so can't just hold for 10 - 20 years lmao.
Also thanks for letting me know that no commision brokarages are actually better for large caps. Only thing they're tax inefficient / problematic when you're from outside the US
One of the biggest reasons the government promotes buy-and-hold strategies for stock market trading, is that tying up so much currency into the stock market prevents it from reaching general circulation, and making consumer prices rise. In short, it allows the government to inflate the currency much more than they might have otherwise, and deflect blame for the market discoordination that results. It's not a coincidence that the preferred method of introducing new money to the market is through the Fed and its "open market operations."
Is it possible to elaborate on the phrase "many wealthy investors never sell their stocks. they just borrow against it". If they are ever asked to repay the debt or reach a limit for the minimum
payment that would put them in a higher tax bracket, would it not be worse in terms of taxes to sell a large amount the portfolio to cover the loan principal?
Example: I want 100K walking around money
-- borrow 100K and pay 2K interest(per year) - lower than taxes but only if i keep the debt for less than 10 years since interest it's 2%. But I now carry a liability, which i didn't have before.
- so now I have 102K debt that I need to repay = i need to sell stock for [100K + taxes + interest to cover the loan].
-- sell stock normally
- sell stock for [100K + taxes]
so, according to my math = [100K + taxes] LOWER THAN [100K + taxes + interest]
so what is the idea:
- i will be in a lower tax bracket than today
- i will forever hold a debt to the bank, growing each year and eventually surpassing taxes
- allow the "saved" taxes to grow in the portfolio. But still, when i realize this growth, taxes are due.
The only difference is time, if there is any difference at all. It's all speculation based on observations. Also trading commissions and spread are part of the cost factoring when choosing the vehicle for the trade and aren't relevant as a disadvantage when discussing trade duration. Much like discussing fuel costs when considering transportation services. Of course you have them and they are factored in the deal. They are not considered an advantage or disadvantage, just a variable.
Watching all the spam craze for trading crypto and thinking perhaps they can all become traders, then Patrick making a video about which books to read on how to become a trader, further embolden my convictions the spam craze is just a scam.
A trader to an investor is like a house flipper is to a landlord. Neither is good or bad but a choice on how you want to get paid.
this video gives a superb analysis - concise, clear, direct, with clean explanations. mark, MBA, Seattle
I'm one of those who do both. Some stocks are for swing trading, some for investment. Not many "value" stocks perform as we expect it. I've lost a lot money a while back by investing in good companies like Intel etc, all the research told me they were solid... well, now I prefer investing in growth.
I'm like you never know what's going to happen
8:20 I learned that the hard way, when i calculated i had payed around $30,000 in a month in trading fees (trading crypto).
I did make a lot more, which wouldn't have been possible without the buy & sell, but still....
Do what you have knowledge and fits your psychology.I tried trading just didnt enjoy it.I also dont buy and hold forever.For me I enjoy contrarian investing.I love buying unloved and selling loved things.Thanks for the video.
I think I’m the same type
I appreciate that you point out what commission free trading... nothing is free...fees are built in. Well said on the contrast and perspectives comparing methods - pro and cons of each. long term is the safest route, however sometimes there are sometimes there are times that call for short term.
What does trading have to do with supply chains? The logistics of supplying countries with the products they need aren’t decided by day traders trading stocks and bonds.
Whether there is some moral good or not I don’t really have much of a view on. But generally, short term trading in aggregate is a zero sum game whereas at least in principle investing isn’t, as over time economic growth will tend to push up the value of equities (not all of them of course, and not by the same amount either). There is also an inherent assumption here that traders don’t have sufficient market power to distort prices - whereas we know that the drive to generate short term returns has led some to engage in market manipulation in a variety of ways.
And rose tinted goggle stuff like creating “harmony and freedom” I can do a bit less of.
statistical analyses of short term versus long term returns that I have seen always seem to show a net negative on short terms when accounting for trading costs and capital gains tax implications. While some traders might do very well, they seem to be in the minority.
A well balanced long portfolio seems to have better chances of actual gains versus actual loss over time. This is especially true if you invest in index funds that track broader market indices and are less vulnerable to the wild swings or complete loss that individual stocks might have.
Your content is underrated.
3:13 that might just be the weirdest handshake i've ever seen
I think a key differences is that Everyday Joe can be a successful long term investor (by simply holding index funds etc.) However the average person will find trading much more difficult to make successful without access to the skills and resources that Patrick describes.
One must also justify putting in more time with investing / trading. Since time is money. If the time spent returned no better than the market, then it's a complete waste of time as someone mindlessly lump sum / dollar cost averaging into an index fund doesn't need to know anything about stocks. Most investors do not beat the market, so what exactly are they striving for? To be in the 10%? One misconception is that institutional investors try to beat the market, which isn't true. They just try to beat inflation and not lose money for their clients. So in a sense some of them may be seeking to take less risk than an index fund. And thus only returned around 6% annually over the past 10 years or so.
Thanks for the great content! I was wondering if you could do a video on describing the different roles at quant funds (Quant Researcher, Quant Developer, Quant Trader)?
Hi Patrick how about a talk about operating as a day trader using a trust to minimise tax on income.?
Gambling is usually defined by being dominated by some form of pure randomness, while trading may be subject to similar arbitrary variations, those variations are supposed to be caused by highly nonlinear but causal relations.
I will love if you do a vedio on how to become a quant, and route to follow to become successful.
Perfectly explained 👌
My viewpoint is that (especially short-term) retail trading should be activelly discouraged. The likelihood of being long-term profitable there is nearly zero. Now compare that to the likelihood of profit in long-term holding of index fund or any wide-market ETF.
Nice plants on the side.
Always enjoy listening to you. 2 comments. I have often heard the idea of trading being compared to gambling.I disagree with that opinion because gambling has a defined and set outcome based on time or a specific event, as a trader, You do not have to trade according to time or event unless you're trading options. Therefore you could hold on to your security if it's out of the. Money and allow it time to return. Hence the major difference between gambling and trading. 2nd cost associated with trading I consider as the cost of doing business. There is no business that does not have A cost associated with it. The average product sold on the market has a gross margin of approximately. 35 to 50%. If you have a gross margin on trading of an average of 90%. I think you are substantially ahead of the game.
Theres a wide overlap between investment and speculation. To me, the hallmark of pure investment is something that Patrick does not mention in this video. This is the intention to put your money where it will actually do some good, i.e. create real value, i.e. solve a real problem. Pure speculation, on the other hand, is to buy something that has no intrinsic value and that solves no kind of problem, except a perceived shortage of money. The axe I use for chopping down my firewood is an investment. The shares I buy in Borregaard are the same. Bitcoin, on the other hand, is pure speculation.
Mr. Boyle find all of your videos very informative and helpful. WISH YOUR BOOKS WERE AVAILABLE AS EBOOKS! You should have your publisher offer them in that format. Well done. 👍🏻
We need a longer discussion about why traders are good for the world
I only trade stocks I am also invested in.
Thanks for another thought stimulating video Patrick. Guilty on both counts- long and short term.
@patrick Boyle Can you please do a video on Icelandic financial crisis? Would greatly appreciate it
It's all trading. Even on a "buy and hold" strategy, there will come a time you will want to, or need to, sell.
The term "investing" is misused. Technically, investing is incorporating a capital good into a production process, which ultimately culminates in the sale of some final good or service. That capital good can be machinery/tools, land, training/practice, or knowledge/research. It can also be raw materials used as inputs (seeds, minerals, chemicals, foodstuffs, herbs/spices/flavors, etc.).
Purchasing a shovel and using it in a road paving business, is investment. Subsequently reselling that same shovel to someone else, even decades later, is trading.
Stock traders are certainly investors, but not in the way most people think of the term. They invest in information-gathering, they invest time and training in a trading strategy or system, they invest in a trading platform and brokerage account, they invest in computer hardware, and the money they trade with serves as raw material for their trading businesses.
I have pondered this for quite a while, the truth is trading and investing are exactly the same in principle but they happen over different time frames. Trading is fast investing and investing is slow trading. If the principles of the trading or investing system are flawed the system will eventually fall apart unless you are Warren Buffett and your butler tips you off to sell all your airline stocks before world governments stop international travel, in this case you can be swimming naked even when the tide goes out.
You could say that if you're somehow able to trade with 100% borrowed capital then you're trading but not making a net investment (unless and until you reinvest the profits you're hopefully getting). Most traders are probably investing at least partially their own capital or the capital of someone else on behalf of whom they're trading.
@@seneca983 This is a good point. I've always thought that someone who doesn't trade their own money is a bit of a fraud.
@@patrickboyle567 Where did all your content go partner? Get a grip man.
Another great video and very informative! I look forward to the next video as always! Thanks for sharing your knowledge with us
I started as a trader and switched to long term investing. The main reason is that I couldn't do proper trading while advancing in my current job. Professional trading is a full time job
Were you a proprietary trader? It is true that its a highly specialised area without much scope for advancement if any at all. At the end of the day its purely P&L driven, no profit, no salary. Hedge Fund employees on the other hand have AUM fees to provide a basic salary for employees.
@@pennyhardaway7491 never been a proprietary trader. I only wanted to hedge against inflation with profit earned by trading. At the end it consumed all my time
10:30 OMG is that young Patrick?
It seems to me that it would be a mistake to make a clear cut distinction between a trader and investor. If someone calls themself a "day trader", then it is clear that they trade their stock on a daily basis. An investor like Warren Buffett might buy stock and keep it for a year or more. But if I were to buy stock, I would prefer a middle ground - not keeping it for a day nor keeping it for a year. Maybe buy some that I keep for a week, some for several months and some for much longer periods. This kind of diverse trading doesn't really classify as "trading", nor is it "investing".
What would interest me is who is more likely to get a better return after one year? A day trader, an investor, or someone who does it in between as I mentioned?
It still very much classifies as trading, it's called swing trading, and is actually generally considered more sensible than day trading
This is called Swing trading, the best traders of the world are swing traders. They cut their losses early and let their winners run over few weeks to months.
Day trading has the least probability of success.
Who knew that an investment could be more than just a trade that moved against you? Fascinating stuff again Patrick. 😉
Can I suggest one on worker "shortages"? I've heard all kinds of theories from short term theories like Brexit (although the EU has similar issues), displaced workers due to Covid-19, people sitting on the sofa on social welfare (again, less convincing as those have been largely curtailed) and long-term demographic changes driving down the number of working age people as % population (actually looked pretty plausible when I looked into it!) 🤔
How did this trading model work out during the Texas power cut?
10:56 - LOL, I have one of those monitors sitting on the shelf! :) (or at least the real one that rendering/composite was based on).
My hero! :D Just made me less depressed :D
Even if a speculator has a good trading strategy aka edge of 50%+ win rate based on technical analysis - and if the rest is applied successfully i.e. risk management, trade management, good R:R - then more often than not they will have a positive equity curve.
In 2021 I have been hoping to make a start in Options Trading. I had to acknowledge myself, I do not have enough/any knowledge (nor experience). I am concerned to do it wrong, and simply lose premium. I suppose I need education, self education.
It’s like debating the difference between an engine and a motor 🤯
It's really good to come across a channel that has balanced, non bias information/opinions on TH-cam.
The best traders mostly insto trade a boring repeat setup and manage risk, but its very hard work 20% pa is a great return which requires super disclipine. The question you have to ask is who is richer Warren Buffett or someone like Mark Minervini who peddles trading courses and books.
Professional Trader job is buy and sell contracts adding liquidity to the markets.
I'm an investor and that's because I have no special knowledge and want to use a technique that doesn't require it. Buying and holding dividend stocks pays me while my portfolio grows. I sacrifice some price appreciation for higher income. I can use yield adjustment if the day comes that my income is inadequate. Or, if I'm super old I can adopt the hated "something percent rule". 🙂
Great video.
Trading is commerce, it makes money 💰
Investment is making money work for you.
Very well said.
A long term trade is a short term trade gone wrong :)