Sunday, June 2, 2024

Investing Is Boring, Trading Is Fun

Yes, most of us know it, which is why we love to go for individual stocks/shares, speculative plays and assets, and going for the latest flavour of the moment. And admittedly, I am guilty of that, too.

Though the words ‘investing’ and ‘trading’ are used interchangeably by many, the main distinctions between them are the methodologies used and time horizons; in investing, we have different styles such as passive, active, value, dividend, etc., and the time horizon is long (at least 10 years for my definition), whereas for trading, signals, trendlines and indicators are usually used for decision making, and the duration between a buy and sell transactions are at most one year.

Due to the long duration nature of investing, and if we do not really have many hobbies and non-monetary preoccupation, the tendency and temptation to go for “quick bucks” are there. Since we have the knowledge of the financial markets and their instruments, why not make use of it to do some punts and bets?

At least one investment book had acknowledged this risk-taking aspect of humans. In The Permanent Portfolio, there is a chapter dedicated to this1, where they described that the trading portion (dubbed The Variable Portfolio) is made up of funds that one can afford to lose, not be replenished from the main investment portfolio, and the losses cannot exceed the initial capital allocated.

Adopting what the book had suggested, we had created a trading portfolio mentioned a few times in our other blog posts, to separate speculative plays from our primary investment methodology, thus setting the stage of our portfolio multiverse concept. Mental accounting, in a positive form, is at play here where we see the monies in the various portfolios differently based on their aims, nature and methodologies. Yet, we also acknowledge that they are working in tandem to complement one another in the overall building of wealth, with capital being transferred across one another in an objective and responsible way. Putting it simply, differentiate, then integrate.

Some examples of instruments that we have in our trading portfolio are cryptocurrencies, covered call ETFs, recovery plays that we do not intend to hold long term, forex, etc. And overall, the trading portfolio made up around 5% of our portfolio multiverse.

If you are wondering whether The Bedokian Portfolio eBook contains a chapter on the trading portfolio, the answer is no, as it is primarily meant for beginners and investing. However, I do not rule out the possibility of including it as a chapter in future editions, or perhaps coming out a companion publication for it.


1 – Rowland, Craig & Lawson, J.M. (2012) Ch16: The Variable Portfolio. The Permanent Portfolio: Harry Browne’s Long-Term Investment Strategy. John Wiley & Sons.

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