You cannot invest without trading. You can trade without investing.
I got it.
The Wall Street Journal is wrong, and has been for decades, about one of finance’s most fundamental distinctions. And I can’t take it anymore.
If you buy a stock just because it has risen so much, without doing any research, you are not, as the Journal and its editors bizarrely insist on calling you, an “investor.” If you’re buying cryptocurrency because, hey, it sounds like fun, you’re not an investor either.
You are indeed a trader: someone who has just bought an asset. And you can be a speculator: someone who thinks that others will pay more than you.
Of course, some people who buy stocks even as
are investors. They read companies’ financial statements, study the health of the underlying companies, and find out who else is betting on or against stocks. Likewise, many digital coin buyers have put in the time and effort to understand how cryptocurrency works and how it could reshape finance.
An investor relies on internal sources of return: earnings, income, growth in the value of assets. A speculator relies on external sources of return: mainly if someone else will pay more, regardless of the core value.
The word investor comes from the Latin “investire”, to dress or dress, surround or wrap. You would never wear clothes without knowing what color they are or what material they are made of. Likewise, you cannot invest in an asset that you know nothing about.
Nonetheless, the Journal and its editors have long called almost anyone who buys just about anything an “investor.” On July 12, 1962, the Journal published a letter to the editor by Benjamin Graham, author of the classic books âSecurity Analysisâ and âThe Smart Investorâ. In June, Graham complained, the Journal ran an article titled “Many Small Investors Bet On More Dips, Sell Odd Lots Short.”
He wrote: “By what definition of ‘investment’ can we give the name ‘investors’ to the little people who make bets on the stock market by selling short lots? (Selling an odd lot is borrowing and selling less than 100 stocks with a bet that one stock will fall – an expensive and risky bet yesterday and today.)
âIf these people are investors,â Graham asked, âhow do you define ‘speculation’ and ‘speculators’? Is it not possible that the current inability to distinguish Between investment and speculation risk causing serious harm not only to individuals, but to the entire financial community, as was the case in the late 1920s? “
Graham was no snob who believed that the markets should be the exclusive playground of the rich. He wrote âThe Smart Investorâ for the express purpose of helping less wealthy people participate wisely in the stock market.
In that book, after which this column is named, Graham said: “Outright speculation is not illegal, immoral, or (for most people) fattening the wallet.”
However, he warned, this creates three dangers: â(1) speculate when you think about investing; (2) seriously speculating instead of being a hobby, when you don’t have the proper knowledge and skills for it; and (3) risk more money in speculation than you can afford to lose.
Most investors speculate a little from time to time. Like a lottery ticket or the occasional visit to the racetrack or casino, a little bit is harmless fun. Many are not.
If you think about investing when you are speculating, you will even attribute a momentary success to the skill even though luck is the most likely explanation. This can lead you to take reckless risks.
Take speculation too seriously, and it turns into an obsession and an addiction. You become unable to accept your losses or focus on the future more than a few minutes in advance. The next thing you know, you’re throwing even more money on the bonfire.
SHARE YOUR THOUGHTS
Are you an investor or a speculator? Join the conversation below.
I think calling traders and speculators âinvestorsâ pushes many newcomers further down the slippery slope towards risks they shouldn’t take and losses they can’t afford. I fervently hope that the Journal and its editors will finally stop using “investor” as the default term for anyone making a transaction.
“Investor” has a long history in the English language as a catch-all term for people who commit capital with the expectation of a return, no matter how long or short, no matter how many or how long. number of investment columns they read. WSJ Financial Editor Charles Forelle said in response to my complaints. “At least until the mid-19th century, ‘investing’ was even used to describe betting on horses – an activity surely no less dissociated from fundamental analysis than buying dogecoin.”
I can hear you, boss, but I still think you’re wrong. There’s no way the Journal could say that a recreational player âinvestsâ in the racetrack just because a dictionary says we can.
Calling novice speculators âinvestorsâ is one of the most powerful ways for marketers to fuel excessive trade.
In a recent post on Instagram, a former pornstar named Lana Rhoades posed in – well, especially in – a bikini, as she held up what appears to be Graham’s “Smart Investor.” According to IMDb.com, she has appeared in videos such as “Tushy” and “Make Me Meow”.
In her article, which was “liked” by nearly 1.8 million people, Ms. Rhoades announced that she would be promoting a cryptocurrency called PAWGcoin.
The coin’s website says the coin is intended for “those who pay homage to developed posteriors.” (PAWG, I have been reliably informed, means Phat Ass White Girl.)
PAWGcoin has grown by around 900% since Ms. Rhoades started promoting it in early June, according to Poocoin.app, a website that tracks these digital currencies.
Ms Rhoades, who tweeted “I also read the WSJ every morningcould not be reached for comment. PAWGcoin’s website encourages visitors to ‘invest now’.
In Ms Rhoades’ Instagram post, she maintains an open copy of “The Intelligent Investor”, the cover of which is reversed. She seems to read it with her eyes closed.
Corrections and amplifications
The address of the Poocoin cryptocurrency website is Poocoin.app. An earlier version of this article incorrectly stated that the address was Poocoin.io. (Corrected June 18)
Write to Jason Zweig at [email protected]
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You cannot invest without trading. You can trade without investing. You cannot invest without trading. You can trade without investing.