On today’s show we examine what it means to be an investor. An investor is very distinct from a business operator, and distinct from a business owner, different than a broker, and different than a trader. An investor is truly passive. They don’t work for their money. They put their money to work for them.
An investor isn’t a gambler, nor are they a speculator. Those folks are called gamblers and speculators.
The return on investment for an investor is based on the creation of value. That happens when you invest in a business, that business generates profit, and returns value to investors in the form of cash flow and increased valuation. In a liquid market, some of the value can be realized in the form of an exit, that is a sale.
Trading isn’t investing. Trading shares is the same as trading tomatoes at a farmers market, or trading baseball cards at a baseball card convention. You’re buying assets at a lower price and selling at a higher price. The profit is made in the arbitrage.
Imagine if you went into the farmers market and decided you were going to invest in tomatoes. Sounds like a strange thing to say and it is. There’s no way you could be investing in tomatoes in that environment. You could be trading tomatoes. That is not Investing.
Let me be clear there’s nothing wrong with trading. Trading is perfectly fine. Only problem arises when you confuse trading and investing. If you think you’re investing and you’re really trading, you might be surprised by the outcome.