Trading is a relatively recent phenomenon made possible by the technology of communication networks and the development of the paper stock ticker. Details of stock transactions – stock symbols, the number of shares, and prices – were collected and transmitted on paper strips to machines located in brokerage offices across the country. Specialized employees using their memory, paper and pencil notes, and analytical skills would “read” the tapes and place orders to buy or sell stocks on behalf of their employer firms.
As a young trainee on Wall Street in the early 1960s, I remember the gray-haired, bespectacled old men bent over and concentrating on the inch-wide tapes spooling directly into their hands from the ticker. As technology improved to offer direct electronic access to price quotes and immediate analysis, trading – buying and selling large share positions to capture short-term profits – became possible for individual investors.
While the term “investing” is used today to describe to anyone and everyone whoever buys or sells a security, economists such as John Maynard Keynes applied the term in a more restrictive manner. In his book, “The General Theory of Employment, Interest, and Money,” Keynes distinguished between investment and speculation. He considered the former to be a forecast of an enterprise’s profits, while the latter attempted to understand investor psychology and its effect on stock prices.
Benjamin Graham – whom some consider to be the father of security analysis – agreed, writing that the disappearance of the distinction between the two was “a cause for concern” in his 1949 book The Intelligent Investor. While Graham recognized the role of speculators, he felt that “there were many ways in which speculation could be unintelligent.”
While there are observable differences in the goals and methods of the different philosophies, their successful practitioners share common character traits:
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Observer, Philosopher, Author
