By Kyle Tetting
Now that we’re just a week out from the first of our two annual seminars, please do not forget to reserve your spot for our seminars on September 30 and October 13. We have a strong lineup of speakers and topics that I don’t want to spoil, so please reserve your spot!
In the interim, I wanted to circle back on a topic we spoke about briefly on our podcast recently that I think bears further discussion: the rise of trading platforms, and the role of investing rather than trading.
Amidst the stay-at-home days of the early COVID pandemic, individuals with little to do outside the home and plenty of time in front of screens started gathering in online message boards to discuss “meme stocks.” Add in the appearance of commission-free trading platforms like Robinhood, and stock trading became a common hobby.
Much of the discourse at the time centered around unloved or highly shorted businesses, but the concept of trading as a hobby and potential moneymaker isn’t exactly new. Electronic trading in the 1970s and 1980s followed by a retail day-trading boom in the lead-up to the dot-com bubble led to increased rulemaking around the practice.
In recent years, the trend has pushed toward cryptocurrency. While some have used it as a hedge or buy-and-hold, others have tried to capitalize on volatility as a way to make money, trading in and out in an effort to leverage inefficiencies or predict the trend.
Concerning — but perhaps more honest — is the most recent twist we’ve seen. Influencers, athletes and actors now tout “prediction markets” as a way to “trade” on everything from sports and weather to culture and politics. It’s big business, with some estimates suggesting the volume could grow to $1 trillion by 2030, but I think it finally truly highlights the difference between investing and trading.
At our core as investors, the idea of betting on a political outcome or sporting event exists in another world entirely from what we do. But the evolution of these types of ideas makes clear that the universe of traders was never aligned with our worldview.
Our job as investors is to align a set of circumstances — goals, risk tolerances, assets and liabilities — against a backdrop of fundamental opinions on the economy and markets. Our views are, necessarily, long term. The changes we seek out are not momentary mispricing or volatility writ large, but innovation and growth across industries.
We partner with investment firms or discuss investment in a stock as an ownership stake in a business. Our objective is to see the long-term successes of the growth and innovation that has allowed investors to profit greatly over hundreds of years. The result is that we can buy a stock, bond or some other security, but we view it through a long-term lens.
This, of course, does not mean that trading can’t be profitable. There is no shortage of wealthy individuals who’ve exploited inefficiencies to trade their way to wealth, whether short-selling, day-trading or simply building a better mousetrap in trade execution like high-frequency traders, as well as the latest iteration of individuals finding wealth trading in the prediction markets by exploiting inside information.
But it should be noted that trading is not the same as investing. They require different skills and a very different temperament. In many ways, trading is a job. Investing is a lifestyle.
Most importantly, as investors, we aim to build something that weathers. Whether through appropriate balance, smart investment selection or simply a long-term lens, investors benefit not just from action, but also inaction. This does not mean we do not make changes to the mix or underlying securities, but those changes are driven by shifting expectations on the fundamentals rather than just a goal to capitalize on a near-term trade.
Those fundamental shifts are something I intend to cover at length on September 30 and again on October 13. We’d love to have you join us.
Kyle Tetting is the president of Landaas & Company