Un trader es el que invierte diariamente, especula a corto plazo, y se va a la cama con las posiciones cerradas, sin riesgo. Un inversor es el que tiene un horizonte temporal más largo y se preocupa de la tendencia de fondo, no hace market timing, ya que aunque venda bien, luego es muy difícil que acierte en la recompra…
Don't Even Think About Trading Places in Markets
At the risk of overstating the obvious, there are important differences between traders and investors. Their timelines differ, as do their goals, preferred assets and methods. Yet some of what I have been hearing from members of each group suggests they themselves can sometimes become confused about these dissimilarities. Blame the recent market volatility for this.
Because of my background, I understand both perspectives: I began on a trading desk, where I did pretty well, if you ignore the several times I nearly blew up. Not just money-losing months -- all traders suffer through those occasionally. I mean total destruction. Those experiences sent me searching for a better understanding of investor psychology, into a decade-plus doing sell-side research, and ultimately to the buy side as a money manager.
So I'm familiar with both sides of the aisle, whether it is as a short-term trader or a long-term asset manager. That lets me spot the trouble that arises when I see folks dancing back and forth over that line.
It is an old cliche because it's true: Traders should never let a bad trade turn into an investment; investors should never try to trade in and out or time the markets.
A quick review explains why: When a trader holds onto a position that has gone against him it reflects a failure of risk management. No trade should ever be entered into without a clearly defined exit strategy, both up and down. Staying with a losing trade is an admission that simple risk-management rules are being ignored. The triumph of hope over experience isn't a strategy; it’s a recipe for more losses.
The trader’s job is to manage capital to optimize profit for a given level of assumed risk. Tying up capital is problematic to begin with, but ignoring one’s own risk-management rules is trading suicide.
The flip side of this is the long-term investor who suddenly believes he can easily and suddenly shift roles, become a cowboy and put on the trader’s hat for fun and profit.
Just as our trader’s lack of risk-management discipline will cost his returns, capital and possibly his career, so too will our investor who suffers the consequences of dabbling in market-timing. The investor lacks the temperament for the ups and downs of daily market action. He -- and most of the time, it’s a he, not a she -- is used to a longer timeline, slower turnover, lower taxes, smaller fees. His folly is the arrogant assumption he can adapt and exploit whatever he thinks those dumb traders are doing. Huge mistake. The results invariably are that clients leave, assets under management plummet and future income is impaired. Other than that, it’s a brilliant plan.
The truism for all diversified investors is that they are not really diversified if they don’t hate something in their portfolio at the moment. Trying to avoid that simple reality by jumping in and out -- a trick investors are not qualified for by either dint of DNA, experience, or philosophy -- doesn't seem to dissuade them. The obvious disadvantages of those costs, taxes and turnover mentioned earlier are ignored. But the emotional risks are even greater.
What starts to happen to the investor who has morphed into a trader is that he believes he is right and everyone else is wrong. Getting out of the market and avoiding a 15 percent decline feels good, but not having a re-entry plan can be disastrous. I have seen countless investors who managed to pull out before the collapse in 2008-09, but then fail to reinvest. It happened in 2000, it happened in 2008 and it happened in 2011. Missing a 200 percent rally in the Standard & Poor's 500 Index and riding gold down because the Federal Reserve is going to stoke hyperinflation and debase the dollar is a classic example.
Perhaps the most infamous version of this was famed market-timerJoe Granville in the late 1970s and early 1980s. Sitting out a 1,000 percent rally that spanned most of the next two decades is a career risk they hardly discuss in business schools, but Granville did just that.
The bottom line remains simple: stick to what you do best. If you are a trader, then trade. Use your capital, let your winners run, cut your losers short. If you are an investor, understand that you have a much easier job -- except for your own behavioral issues.
The sooner people figure that out, the better their portfolios and returns will look.
Y para que veas los frutos de los inversores a largo plazo, estos son:
The DJIA at the end of 1914 was 54.6. One hundred years later, at the end of 2014, it was 17,823, or 326 times as high. This century included two world wars, several regional wars, the Great Depression, the Great Recessions of the 1970s and the 2000s, various asset price bubbles, and numerous financial crises. Here’s the 100-year graph:
This is impressive for aggregate increase over time, but what average annual growth rate did it take to go from 54.6 to 17,823 in a century? The answer, which may seem a moderate number, is a little less than 6% per year (5.96%).
That is a nominal, not a real, rate of increase, because the century also brought the momentous transition to a fiat currency monetary system and endemic inflation. The increase in the Consumer Price Index over the century averaged about 3.2% a year. Adjusting for inflation, the real average annual appreciation of the DJIA over the 100 years was 2.7%. Here is the 100-year history of the DJIA in constant 1914 dollars:
Taking inflation into account definitely makes it look a lot different, but still goes up on average, multiplying about 14 times from 1914 to 2014.
To price appreciation, of course we must add dividends. Over the century, the average dividend yield of the DJIA was about 4.1%. Over the century the DJIA provided an average annual real total return of about 6.8%.
A few years ago, in the wake of the great 21st century bust, there was much talk of the “new normal”—meaning single digit investment returns. We can see that this was not the new, but the old normal—or more simply, the normal. With plenty of fluctuations along the way, to be sure.
Abrazos,
PD1: Decía el Señor que si tenías verdadero dolor no se lo mostraras a todo el mundo, y si hacías una buena acción no fueras publicitándola. Humildad siempre…
