Good Morning to All;

Last week I posed the question to the board as to people's interpretation of investing vs. trading.

This inspired some very interesting pm's from many people I have never heard from before. I also heard from many of the regular posters here. There were some very unique thoughts. I will try to encapsulate these in an effort to create a definition so we know what differentiates the two.

In order to be able to define something, it must be genarally accepted that it is what describes the item or act.

At first blush one would assume it is a matter of "time". As time is the essence of a contract one could assume that the length of "time" a stock were held, would be the defining factor. There is, however, a VERY wide ranging idea of what constitutes appropriate "time" from acquisition to disposal in order to be considered an investment as opposed to a trade. Who decides this? Can someone arbitrarily decide that X equals the amount of time you hold a stock before you are an investor? This could be very different for many different people. Hardly something that would be generally accepted.

Then there is the consideration that an investment was not a trade, depending on whom the stock was purchased from. The thought being, that if you buy the stock from the company, you have invested your money in the company, for the purpose of furthering business activity. If you bought your stock from another shareholder there is no direct benefit to the company as your money never went to the party that needed it to make more money. Buying from another "trader" makes you a "trader". The length of time has nothing to do with it. Buying your stock from the person who puts the money to work, makes you an investor.

These seem to be the two most popular theories.

Frankly, I doubt time has anything to do with it. Neither does whom you give your money too, actually define your intent. Investing is about making money......right? I have a friend who told me to always follow the money.

Maybe, what describes the difference is where the money that you hope your "investment" makes,....comes from.

Maybe, the best person to define the difference between an investment and a trade is actually our friends at the Canada Revenue Agency.

If you buy a stock and it goes up in value......regardless of how much time passes, you can choose to sell it. That is a profit that is derived from a trade in a commodity.....The stock itself! Even if you held that stock for 10 years, the simple fact that you held this item for a "capital gain" is what constiututes a "trade". That is why you pay capital gains tax!

If, however, you buy a stock for the purpose of generating an income from the dividend that stock spins off, then you have "invested" your money to make income and hence you pay income tax. Your capital base remains unchanged.

Would this not constitute an investment? Can it be that investing for the purpose of generating income is in fact an investment?

Would it not then be reasonable to assume that any sale of a stock itelf, constitutes a trade? Is it not the capital appreciation that motivated the purchase and sale, and not the income potential?

Is it not then possible that purchasing a stock can be both for the purpose of trade and investment? You hold a stock for two years and it pays you a quarterly dividend that is a return on your investment. After the two years the stock went up 25% and you decide to sell it, for the purpose of trade and capital gain.

If you are a prudent investor then you should also be a prudent trader. Should you not be somewhat deversified, in that you hold stock that is safe and income generating, as well as riskier investments for the purpose of trade and capital appreciation?

You can be either a trader or an investor! Or, you can be both! I submit to you that you should be both, if you are acting prudently. That means that neither one makes you a better person that the other. Calling someone a "trader" has taken on a negative conotation. You should all be traders......and investors!

Spread your risk.

PC