There Are No Bad Trades Just Bad Investments

For all intensive purposes you can do two things with a stock: trade or invest.

A trade is a short-term affair (days to weeks), while an investment is a long-term option (months to years).

The idea it to determine which option is best for the stock at hand.

Because trades are based on short-term actions, the long-term outlook of a company is basically useless. So it doesn’t matter if the company is a dump. If there is a brief glimmer of positive news or bullish technicals, virtually any stock is a viable trade at some point.

The same can’t be said for an investment. Venture capitalist don’t invest in a company and expect a return in just a couple of days. They are betting the long-term outlook of the company will ultimately bring back some return on investment.

Investors are not bothered by any short-term negativity because they are focused on the then and not now.

We can see a great example of this in Research in Motion (RIMM). About 6 months back, the long-term outlook on RIM was not great. In fact, if you bought shares back then, you would still be in the negative today.

That being said, as much as a I hate RIM, that does not prevent me from executing trades of the stock throughout this same time period.

The market is a crazy place, and stocks move up and down all the time. Regardless of if you think a company is a dump in the long-term, there are always awesome trade-able opportunities in the short.