Many people think that investing and trading are the same thing. But much like barbecuing and grilling, the terms get mixed up a lot.
With sincere apologies to our vegan and vegetarian friends, we’ll explain the difference using barbecued ribs and a grilled ribeye.
When you barbecue ribs—we’re talking real old-school BBQ, not just dumping sauce on something and calling it BBQ—you cook them on low, indirect heat for hours and hours. This is how the ribs become fall-off-the-bone tender. When you barbecue, time is the most important factor. And the end result is usually worth the wait.
When you grill a ribeye steak, on the other hand, the process is quick—and it can be intense. If you walk away from the grill to do something else, you risk overcooking your steak. With grilling, your undivided attention is what’s important. If you do everything just right, your reward is quick—and delicious.
Either way, what you get is dinner. But your cooking technique—or process—is different.
Now, let’s apply the key thinking behind barbecuing (time) and grilling (attention) to investing and trading. Both are processes where you buy shares—or pieces—of stocks, ETFs, funds, or other investment types with the goal of making more money than what you started with. The major difference is how much time and attention you put into each process.
With investing, you typically keep your shares for a long period of time. This is what the terms buy and hold and long-term investing refer to. You want to see the earnings for a company you invest in grow over years, or even decades. So just like barbecuing, it’s all about time. And although you should have a general idea of what’s going on with your investments, you can just check in on them every now and then, or when something big happens to the company or the market.
With trading, you typically buy shares with the hope of making a quicker profit. This is trickier, since the overall market is unpredictable in the short term. So you need to be actively involved, watching the stock market very closely and keeping track of what the companies you’ve bought into are doing. Did the CEO just get fired? Is the company about to buy another company? When will the company report earnings, and will they beat expectations? Just like grilling, you should pay close attention to what’s going on when you trade.
In either case, it’s important to have a plan before investing or trading. Know in advance what you are hoping to accomplish, decide how much risk you are willing to take, and how long you are willing to put your money on the line.
There’s so much to know about investing and trading that it can feel overwhelming. And you can lose money, so it’s important to know what you’re doing before you do anything at all. Read Understanding the basics of investing to learn more about starting out. And please, don’t plan on trading until you can really invest the time to learn and have the attention to give to do it the right way. Just like the best barbecue, good things come to those who wait.