Breaking news: Investors pile back into equities!

Speculators and traders piled back into the markets last week, with the Australian market up more than 4% for the week and 6% for the month of October. Overseas markets showed similar returns with the S&P 500 up by almost 5% for the month, as clearly investors have been buoyed by the economic indicators and numbers coming out of the United States and China.

The result being that speculators are entering the market again, which is why you would have seen the headlines last week like “Markets are up, and billions of dollars have been created as speculators and traders moved from cash to equities!”

Or did you miss them? Don’t worry, I missed them as well, and the reality is that good investment stories rarely make the front page. Why?

Good news does not sell newspapers.

I have used the term speculators as it’s often viewed as being interchangeable with investors, but they are very different. Speculators or traders are glued to their screens, buying and selling on a regular basis with no long term strategy but simply seeking to profit from short term price fluctuations.

Whilst it can be a profitable experience in the short term, the reality is that it is time consuming, challenging and unlikely to create sustainable wealth. Consider that not a single member on the BRW200 is a trader, not a single one.

Let’s consider what an investor is.

Are you a trader or investor?

Investors are disciplined, have a plan and are generally process driven. By having a long term plan (with short, medium and long term milestones) they are able to look past the headlines, make investing a habit whilst saving for the fun things in life.

Investors don’t jump in and out of markets at the click of a mouse, speculators and traders do.

So the next time you see the headline that investors are jumping out of markets, ask yourself, would investors act this way?

Perhaps the headline should read:

Traders sold their shares to investors today.

Never forget that for every seller there is a buyer.

It’s my job to work as my client’s financial ‘lifesaver’ to ensure that they swim between the flags and that they don’t get in over their heads.