Are you an investor or a
trader? Investors think long-term, while traders focus on short-term
Trading furs, cloth, commodities, or tulips, has gone back centuries,
if not millennium, but was about adding value and moving goods to
markets. In other words, through trading many ran businesses that
looked a great deal like investing.
The "ticker tape" allowed the trading of financial products, but after
the Great Depression many wouldn't touch stocks for decades. Now,
financial market news and quotes are on TV all-day and pushed out over
smartphones. This can encourage "trading" over "investing." Or another
way of saying the same thing, the short-term over the long-term.
For example, many people have zero idea what Bitcoin is, why it is
needed, or what gives it value, but they are mesmerized by it
nonetheless. It's just digital scrip – an alternative to sovereign
currency. It pays no dividend and isn't widely accepted. No one knows
if it will last.
In the meantime, there are monumental events taking place that get
missed if one focuses on the trees and not the forest. Horizontal
drilling and fracking are one of those.
Remember when the world was about to run out of natural gas and oil?
Remember when the Middle East and Russia, because of their energy
reserves, could dominate geopolitics?
Well, all that has changed. The US is now the world's biggest energy
producer and, by 2020, the US is likely to become a net energy
exporter to the rest of the world. This explains the political
upheaval in Saudi Arabia as the royal family moves slowly toward a
more free-market friendly environment. Russia faces similar forces
that, in the end, will create more global stability.
Because of US supplies, Europe can become less dependent on Russian
oil and natural gas. In addition, just like when Ronald Reagan was
president of the US, as the pendulum swings toward less regulation,
lower tax rates and smaller government, Europe must follow suit.
The combination of these developments causes stronger global economic
growth, which is great news for investors.
However, the dominance of governments in recent decades, and the
reporting of every utterance of Federal Reserve or foreign central
bankers, creates anxiety among many investors. Some investors are
worried about a flattening, or inversion, of the yield curve as the
But these concerns are overdone. It's true that an inverted yield
curve signals tight money, but inversions typically don't happen until
the Fed pulls enough reserves out of the system to push the federal
funds rate above nominal GDP growth. Right now, that's about 3.5%,
which means the Fed is likely at least two years away. And, the
banking system is still stuffed with over $2 trillion in excess bank
reserves. Monetary policy, by definition, is not tight until those
excess reserves are gone.
Focusing on trading, and not investing, misses these longer-term
developments and highlights short-term fears. Patience, persistence
and optimism help avoid the pitfalls of short-term thinking. The
current environment will continue to reward those who stay focused on