Nowadays, the term “investor” applies to anyone who buys or sells a security. It’s a loose term that gets labeled on anyone who participates in the stock market at all without any regard to what he/she buys or for what purpose. This grand generalization of “investors” ends up hurting more than it helps.
Let’s find out what this word actually means.
The word “investor” comes from the Latin word “investire.” In (into, upon) + vestire (clothe). The combination of these two words mean “to cloth in.” You can think of this as the process of a judge being sworn in and wearing the official robes of his or her office. Or how sports fans put on their team’s jersey before heading to watch them play.
In other words, the person wearing the clothes is making a statement about who or what they belong to. It’s a claim on an identity.
This is important because, if I can use the sports jersey analogy, people don’t switch teams (and therefore jerseys) just because their team is having a good or bad season. It’s THEIR team!! They stick with them through the great times and the lean times.
By definition, an investor is someone who is all about the long-term ownership of businesses. They are focused on the slow and steady accumulation of value, derived from the ability of corporations to produce services and goods that consumers demand, to effectively allocate capital, and to innovate when change happens.
The process of forecasting the market, the expectation that some stocks will rise quicker than others, and the focus on the short-term is better known as speculation. Unfortunately, the majority of what we read, see and hear in regards to the market is more speculative than investment driven.
I like what Jack Bogle, founder of Vanguard, says, “the stock market is a giant distraction from the business of investing.”
So friends, slow down and try to capture the increase in value that businesses create over time – as cheaply and effectively as you can. After all, that’s what investors do.