0 - What am I getting into?

If you've ever seen a TV show about Wall Street professionals hitting the NASDAQ floor and hustlin', or if you've watched Wolf of Wall Street or The Big Short, you'll be pretty familiar with stereotypes/archetypes of financial types like the big ego trader who has "seen it all" and the finance nerd who has actually seen it all and has the numbers to back it up.

When it comes to investment and growing wealth, there are three "groups" of people active in it: those who are investing, those who are trading, and those who are gambling.

Investing

People who are investing have a long-term plan to reach a certain financial goal. Most people who want to grow their wealth are in this group; there's a desire to grow their wealth but they're content with picking a strategy and letting interest & company performance do their thing.

For the most part, investing is a very passive activity: a lot of one's work for setting up an investment is done at that investment account's christening where it's decided how aggressive it'll be to start, when it'll switch to more stable holdings, the monetary sum that will be deposited into the account and how often that deposit will occur, and what will be the stocks and bonds to invest in. 

It's a very fire-and-forget system where once the investment account is created, it's easy to put out of your mind outside of quarterly check-ins to tweak how much is deposited in your investment account, if there should be any new investments made to secure or improve the account portfolio, and so on.

One of the benefits of investment is that it can pay off really well by following good sense practices while putting more money into the portfolio over time. It's very resilient (not invincible) to market shakeups over the plan's lifetime and really shows how powerful the formula for compound interest really is.

One of the detriments of investment is that unless the investor is paying acute attention, it's difficult to take advantage of sharp jumps in random company performance, i.e., you would have to be paying really close attention to the GameStop stock incident in order to take advantage of the $GME share price skyrocketing.

Trading

Trading takes a lot of work, far more than regular investing, but it pays off just as well as investing does over shorter timeframes. Some people find the act of following the market and buying/selling based on analysis fun.

Trading lends itself to quicker and more substantial profits due to the diversity of most trading portfolios and the focus on stocks over bonds. However, trading portfolios are subject to transaction fees: buying, selling, and converting to monetary assets.

You might've heard of people called "day traders" before - they read articles and economic forecasts and stay alert through the workday making judgment calls about what might be a good buy or a good sell to eek out a profit for the day. Day traders will buy and most often sell stocks on the same day, hence their name; they want to capitalize on extremely short-term price fluctuations.

There's a human component to trading because market value is mostly decided by human emotion: [x] thinks that Foo Stock™ is  worth more than Bar Stock™ because of some analysis of company performance, who's at the helm of a company (someone aggressive? Someone who values the long term play?), and gut feeling. 

Sometimes the actions you take during trading will make sense, but the results won't. A CEO can completely fuck their company and in turn, fuck your investment. Other times it might be an investor issue, where the investor lost out on a stock they thought was a winner and they keep holding, praying for a rebound.

Traders stand to make more short-term profit but need to work far harder than investors to make their income into long-term profit, and most of them will inevitably introduce investing into their life as well.

Gambling

Gambling and trading share a lot of the same features, where they both take a lot of work, there's an expectation of loss, "plans" in measure to mitigate the loss, looking at what's coming down the block and gathering sentiment.

However, gambling is more structured around gut feeling from things like consumer and trader sentiment, and some people simply get a dopamine rush from seeing the numbers go up or down. Gamblers expect to lose in some form, while investors and traders expect some kind of risk.

The difference between these two viewpoints is that when you take a risk, you expect a payoff down the line. Maybe not today, tomorrow, next month, or even next year, but within some realistic timeframe. The risk is that your investment might not bloom, or your dividend income might end up breaking even with your initial investment.

When you expect to lose, you've subscribed to the layman's sentiment that if you enter in low on some up and coming stock, it'll eventually pay off if you HODL hard enough because there's a lot of buzz and user confidence that it'll perform well. There's a strong possibility that your investment might simply break even, go nowhere, or even worse cost you. This is what happened during the GameStop stock incident.

I used to know someone from a video game community who found themselves deep into cryptocurrency investment at its peak, and when I knew them during this period they would talk a lot about accepting losses as part of the process instead of accepting risk of loss, which is the red flag of someone being a gambler versus a trader.

As I mentioned earlier, there's still a strategic part of gambling but a lot of this person's strategy was banking on emotional sentiment from what they read on 4chan's /biz/ board while occasionally looking at Coinbase during the day to figure out when to mitigate any losses on a gamble.

Yeah, I get it, don't be a gambler

It's important to know which definition is which, especially if you get into trading. Knowing when you're trading and when you're gambling will save you at many stages of trading that might turn into gambling. If you realize that you're going into a trade expecting a loss that isn't part of a larger plan (not just buy and hodl), you can save yourself a lot of headache and actual financial loss by stopping right wherever you might be.

The line between trading and gambling can vary in thickness, especially for day traders. A day trader is getting into gambling territory when they're labeled a "pattern day trader" by their brokerage, and in order to protect everyone involved (including the market!) the brokerage will restrict that trader's account.

It's best to really combine investing and trading, though some people will value trading over investing or vice versa.