Apr

Chapter 12 What type of investor are you?

This is an excerpt from the Liberated Stock Trader Book & Trading Academy Pro Stock Market Training Course. Chapter 12, Section 2. This Chapter is Dedicated to Trading Strategy

Before you start to buy and sell stocks it is important to look at who you are and what you want to achieve. To begin with we need to understand some basic terms.

The term investor has many different meanings, the Collins English dictionary defines it as “An investor is a person or organization that buys stocks or shares or pays money into a bank in order to receive a profit”. But this is a little generic to be used clearly for us to reference.

In the world of finance, investments and speculation the way in which you seek to gain your profit dictates what you are.

The Speculator:

A speculator seeks to exploit short term trends, loopholes, momentum or news to seek a gain on money invested. For example, if I see that there is incredible Volume on a stock and I want to trade into that stock to get a quick gain without having any in depth understanding of the company, industry or management team I am essentially speculating that this event will make the stock rise.

Alternatively, someone who enters into an Options Contract shorting a stock, in order to make a profit is also speculating that the stock price will drop during a given time frame. This certainly is not investing. None of the Cash invested in the Options Contract will ever be seen by the company in question; therefore you are not investing in that company.

George Soros could be considered one of the ultimate Speculators, and indeed the most successful with a net worth of circa $7 Billion. Soros, known as the “man who broke the Bank of England” took out a $10 Billion Short Position betting that Pound Sterling would fall. Although the Bank of England did everything it could to prop up the currency it failed dramatically and Soros bagged $2 Billion profit from the bet. Soros was betting on a future event happening. Was this risky? George Soros does not take undue risk, his knowledge of the Global Finance and Capital markets enabled him to take a calculated risk which paid off handsomely. What he did is classic speculation.

Those who speculate in stocks usually use Charts and News events to trade with.

The Investor:

The investor is usually someone whose money is used to capitalize a company and the money is invested accordingly by the company to achieve better business results. An investor will seek a reward for his belief in an investment and seek a profit thereof.

An investor, will have evaluated the worth of an investment, and seek a steady return from it. Someone who buys their own house is an investor. An investor will often seek to minimize risk and maximize reward. A smart investor will look to buy an investment at a time where it is good value and this value will help to minimize downside risks. An investor looks at the business fundamentals of a deal and weighs facts not emotion to enable a thorough judgment to be made.

Buying Bonds with fixed rates of returns are an investment for someone looking to beat their Bank Saving/Checking account interest but also unwilling to take the perceived risks of purchasing stocks.

The Trader:

A trader is someone who buys and sells a security or commodity to make a profit. However someone who is an investor could trade stocks and also people who speculate usually trade contracts, stock, or use other more exotic tools.

The Liberated Stock Trader:

A liberated stock trader will seek to base stock purchases on solid Fundamental facts that make business sense in the cold light of day. You will select fundamentally winning companies with great futures and use technical analysis to measure the market action to decide if the time is right to buy this stock……………