Today, I read an article entitled “Bank of England’s warning pension help to end worries investors“.
While I understand and agree with the premise, I questioned the last word in that headline.
I’d argue that the word ‘investors’ ought to be replaced by ‘traders’.
Let me share why.
You say investor, I say trader
The words may be different in length by two characters, but for me they’re worlds apart.
When stock indices are spooked, gripped with fear, or described by other Halloween-y adjectives, often news outlets will refer to the market movers as investors.
As a short hand, that’s fair enough perhaps.
But everyone has a hill that they’d die on, so to speak. And mine is that it’s in fact traders who move the markets on a daily basis.
You see, the buying and selling of shares by professionals working for investment banks, hedge funds and the like — and, let’s not forget, purchases or sales triggered by computer algorithms! — comprises the vast majority of daily trading in stock markets.
But don’t call the whole thing off!
About a year ago, data from Bloomberg showed that almost 25% of the total equities trading volume came from retail investors. That’s you and I, Fools. Especially when compartmentalised in to the even more niche long-term, buy-and-hold retail investor bucket!
Just 12 months earlier, that was five percentage points lower, at 20%. And for the decade before that, the figure hovered around 10-15%.
So what have we established?
That around three quarters of trading is conducted by professional institutional or high-net-worth traders, sure.
Which I hope underlines my point about how significant changes in stock markets and share prices come from traders rather than long-term investors.
Yet we’ve also been shown that increasing numbers are turning to stock-picking to help improve their financial situations.
And as a Fool (upper-case, as always!), that delights me. Because it’s not hard to see that with inflation soaring and interest rates still lagging behind, unfortunately we’d likely be losing money if stored in a savings account.
But through investing — both capital appreciation and collecting dividends — it’s possible for ordinary folk like us to make our money work harder for us, and better prepare us for the future.
And next time you see a headline that suggests investors are running scared amidst the current conditions… Well, I hope you take that with a pinch of salt.
Because a true Fool knows that the best time to buy shares is now — whatever else is going on. And that investing consistently through both bull and bear markets makes sense.
If you take one thing away from this article, please let it be this. Time in the market is a better strategy than trying to time the market. There’s a reason it’s often referred to as the ‘golden rule of investing’!