Trading is not investing, and I uncovered a good reminder of that recently.
During this “shelter-in-place,” we decided to clear out all the boxes stuffed away in the basement.
For context, a few years ago, I ventured back to the dark recesses of the basement, in search of something. I stumbled across check stubs from 1988, Illinois Bell phone bills from 1991 and an invoice from the Tops Appliances dated December 1992.
So I knew clearing out all those boxes would be an exercise I wouldn’t enjoy.
In one box, I found two little gems from my trading account:
– a purchase slip to buy Apple Computer in 1989.
– another trade confirmation to buy shares of Apple turned up, from 1993.
I had found two instances where I thought enough of Apple to buy the stock in my own personal trading account.
But I also found two other times to sell the very same stock out of my account.
One trade barely positive, the other produced a small loss.
After splits, my cost basis today would be below $1/share. For fun, you can look up where the stock sells now. But that was 27 years ago. In a trading account, your definition of “long-term” might be 27 days.
Let’s not confuse a trading account with long-term investing.
This was an account I set up for speculating. Buy a stock, make a few points, then flip it. It was not for long-term investing. There is a difference.
But many folks never grasp that concept. For many, their “trading account” becomes their personal report card for their “investing experience.” Not much different than gambling.
It is cringe-worthy to think: if I held onto one single share of Apple all those years, today I would have eight shares, with an adjusted cost basis under $1. I will let you do the rest of the math. Again, trading versus investing. And Mr. Market always wants to trade.
In front of, and behind, those trade slips for Apple were also trades to buy and sell:
- Coleco.
- Navistar.
- CRZY (Crazy Eddie)
- NutraBevCo.
- RJR Nabisco warrants.
- Polaroid.
- Humagen.
- Petrie Stores.
- Mr. Coffee.
- North Kalgoorlie Gold Mining.
- Avon Products.
And many other names. Some trades worked out well, a lot of flips did not go so well. It was gut-wrenching to see these trade slips resurface after all these years, like a psycho girlfriend from high school.
There were GREAT stories behind each of these stocks. But a “great story” wasn’t always going to make a trade work. And these were trades. Not investments.
To be fair, my “long-term” investing account was not invested in stocks back then. The “investing account” was actually not invested at all – it was a savings account at a bank. Back then I was working strictly on commission and needed a safety net. I was also busy paying down debt, saving for a home and could not afford to have long-term money tied up in stocks, no matter how lucrative they appeared. No matter how compelling the story.
And I believe more folks should recognize the difference. Set up a method to save money, have a small account for speculating or trading. But keep them separate. Eventually, when your personal balance sheet turns positive, it’s time to think about putting money away longer term.