I’m a trader, so what I care about is catching short-term moves in price. I’m not an investor who’s looking for long-haul appreciation or locating the next ORCL. For that reason, the health of a business doesn’t matter to me. It’s unlikely to change during the course of a trade that lasts anywhere from a few hours up to a couple of weeks (barring scheduled earnings reports or conference calls).
Some traders fixate on fundamentals. They might use the fundies as a starting point for trade ideas, which is alright, but is not necessary for short-term positions. They might use the fundamentals as a logic crutch to defend their losing trade, telling themselves “it’ll come back” because of the business. We know how that usually ends for them when opinions are allowed to interfere [1].
If you haven’t already done so, make this all-important distinction: there are good companies and there are good stocks, and they do not necessarily overlap. Sorry if that bursts your bubble, but many great businesses have a stock that’s going nowhere. Some stocks are making excellent, clean moves even though their business may not endure the test of time. The correlation between good company and trade-worthy stock is not at all guaranteed.
Here’s the point in case you’ve missed it so far… If you are a trader, focus on the price action and place importance on it alone. Trading is about compounding money by turning capital over frequently [2]. It’s not committing to a long-term relationship with a stock…that’s investing and it’s an entirely different topic (not found here).
So if you are a trader, and if your timeframe is less than a few weeks, consider the likelihood that the health (or lack thereof) of the company behind the ticker symbol you’re trading just isn’t going to change that quickly. Business growth or attrition takes time. With that in mind, all you’re left with is the price action – right where we began.
Simple and straightforward.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast [3]
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