Trading vs. Investing: Market Commentary from Cabana’s CEO – October 19, 2022

2 years ago

  • Share this:

In an environment like the one we are in today I think it is important to revisit the difference between trading and investing. It is very easy to get caught up in the wild gyrations of stocks and confuse the daily (and weekly) swings as “investing”. In my opinion, this is actually just noise caused by the people who are “trading” within the markets in an attempt to take advantage of volatility and short-term movements in stocks.  

At Cabana, we are investors and are seeking to grow accounts through allocation of money to the major asset classes at times during the repeating economic cycle when it is deemed by CARA (our Cyclical Asset Reallocation Algorithm) that those particular asset classes are appropriate. It is the long-term growth in our economy through many bull and bear cycles that has resulted in the major stock indices multiplying many times over and investors who have participated in this process becoming wealthy. In a nutshell, I believe this is what investing is all about – putting money into an idea or opportunity that will grow and prosper over time and generate a return on hard-earned money that exceeds the amount put down. The investing opportunity I am talking about is the same ingenuity and work ethic of the human beings who make up the United States (and the world). I think there are many parallels between the markets and real life. I would go so far as to argue that what we call the “stock market” is merely a reflection of ourselves. Humans have been evolving and developing for a long time and the path to date has always been forward. Despite wars, plagues, dictators and the like, we have persevered and pushed the ball forward, with each generation reaching new heights in medicine, living conditions, technology etc. Just in my lifetime, think of all that is new. The advancements in all areas of the human experience are mind boggling. Investing is believing that this will all continue and over time our having supported these advancements will pay off. So far, this has been true. Over every rolling 20-year period since the inception of the United States, the stock market has ended higher than at the beginning. Imagine that. No matter when you invested, if you waited 20 years, the ingenuity, grit and determination of human beings pushed the stock market higher.  

At Cabana, we recognize this and try not to overcomplicate things. We do, however, acknowledge that during the cyclical nature of things, there are times when stocks (and other assets) take a step back and re-group. Just like people periodically need to take a step back and re-group. We call this re-grouping a bear market. When this occurs, we try and smooth things out and get off the tracks while things get cleaned. This is how we strive to minimize the losses that inevitably occur as companies are re-priced lower. It’s our view that this not only makes for a happier experience as an investor, but puts us in the best position for when a new bull market begins. If we have saved some of our money during the bad times, we have more money to grow during the good times. This is what CARA’s process is all about. It is not quick, clean or sexy. It is what we call investing, and we are investors. 

Now back to what I call “trading”. There are many large institutions and other market participants who are using a variety of technologies and products in an attempt to take advantage of the day-to-day machinations within the process I have outlined above. They are not interested in the forest but rather the two or three trees in front of them. I think it is the activity of these market players that often causes violent movements in both directions during larger cyclical transitions. These are called counter-trend movements and can result in the confusion between investing and trading. We have seen quite a bit of this during the current bear market, which began at the beginning of the year. We have seen several daily, weekly and even monthly reversals whereby the major stock indices have rallied 3, 5 or even 10%. Up to this point, each time the rally failed and a new low was subsequently reached. This tells us that the bear market cycle is still intact, and we are still in the process of “re-grouping”. This also tells us that the bounce in stocks that we have seen this week is due to traders working to take advantage of short-term opportunities. There is nothing wrong with that. In fact, it is quick, sexy and sometimes clean. It can also be dangerous. Trust me on this last point. I have personally made and lost thousands of dollars trading over the course of a few minutes.  

On Thursday of last week, we saw a really great example of trading within the larger cycle. The September CPI (inflation) came in higher than expected, thus reinforcing the notion of higher interest rates to come and more pain for all of us. The stock market immediately sold off with the DOW down some 600 points. Within a matter of minutes, the selloff reversed, and stocks exploded upwards, with the major indices all ending up in the black by more than 2%. Did something get better to justify one of the largest one-day reversals in history? Did something happen to suggest that we are out of the bear market cycle? No. What happened is that we got more bad news and confirmation that there is more work to do to turn this bear market around. What also happened is traders began taking profits on their bets that the market would continue down. The term for this is “buy the rumor, sell the news”. To do that they needed to buy stocks to “cover the short position”. As more and more traders took profits, more and more buying occurred. Like an avalanche melting up, traders within the markets pushed up more than 4% from the lows of the day to the closing highs. Somebody made a bunch of money on Thursday. And somebody lost a bunch of money on Thursday. Those somebodies are called traders. 

As we will likely continue to experience these market ups and downs over the next weeks, and perhaps months, it is worth considering whether you are an investor or a trader.  


January 17, 2024

This material is prepared by Cabana LLC, dba Cabana Asset Management and/or its affiliates (together “Cabana”) for informational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. This material may only be distributed in its original format and may not be altered or reproduced without the prior written consent of CabanaThe opinions expressed reflect the judgement of the author, are as of the date of its publication and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by Cabana to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Cabana, its officers, employees or agents.  

“CARA” is Cabana’s Cyclical Asset Reallocation Algorithm. Scenes assigned as per the judgment of The Cabana Group. Scene names and number of scenes have changed over time in an effort to obtain efficiencies and provide clarity of investment objective. 

This material may contain ‘forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. All investment strategies have the potential for profit or loss. All strategies have different degrees of risk. There is no guarantee that any specific investment or strategy will be suitable or profitable for a particular client. The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal.  

Cabana LLC, dba Cabana Asset Management (“Cabana”), is an SEC registered investment adviser with offices in Fayetteville, AR and Plano, TX. The firm only transacts business in states where it is properly registered or is exempted from registration requirements. Registration as an investment adviser is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. Additional information regarding Cabana, including its fees, can be found in Cabana’s Form ADV Part 2A or Form CRS. A copy of which is available upon request or online at 

Past performance is no guarantee of future results. All investment strategies have different degrees of risk and the corresponding potential for profit or loss. Asset allocation and diversification will not necessarily improve returns and cannot eliminate the risk of investment losses. “Target Drawdown” is merely a descriptive term used to describe the general strategy and objective of the portfolio, it is not a guarantee, nor should it be construed to suggest safety or protection from loss. There is no guarantee that portfolio performance will remain consistent with the targeted drawdown parameter. While risk tolerance and targeted “drawdown” are identified on the front end for each portfolio, Cabana’s algorithm does not take any one client’s situation into account and there is no guarantee that Cabana’s strategies will be suitable for any investor. Investors and advisors should not simply rely on the name of any portfolio to determine what is suitable. It is the responsibility of investment advisors to determine what is suitable for their clients. Cabana manages assets on multiple custodial platforms. Performance results for specific investors will vary based upon differences in associated costs and asset availability.  

Cabana claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a trademark of the CFA Institute. The CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. To receive a GIPS Report and/or a firm’s list of composite/pooled fund descriptions please email your request to

All recommendations made in the prior 12 months are available upon request. Cabana’s allocation history is available here. For additional information regarding our services, including performance disclosures and award methodology, please visit 

Commonly used index/benchmark definitions:  

All indices and categories are unmanaged and an individual cannot invest directly in an index or category. Index returns do not include fees or expenses. Benchmark indices will likely materially differ from Cabana’s portfolio strategies. Detailed information as to how the returns are calculated can be obtained online from the following link: 

Morningstar’s Moderate Target Risk index  follows a moderate equity risk preference and is based on well-established asset allocation methodology from Ibbotson Associates, a Morningstar company.  

Morningstar’s Tactical Allocation category includes portfolios that seek to provide capital appreciation and income by actively shifting allocations across investments. These portfolios have material shifts across equity regions, and bond sectors on a frequent basis. 

The S&P 500 Index is a market-capitalization weighted stock market index of 500 widely held large-cap stocks often used as a proxy for the U.S. stock market.  

The Russell 2000 and 3000 indices are market-capitalization weighted stock market indices that include, respectively, 2000 and 3000 of the most widely-held stocks and are often used as proxies for the U.S. stock market. 

The Nasdaq Composite Index is a market-weight capitalization index that covers more than 3,000 stocks listed on the Nasdaq Stock Market. What is the Nasdaq Composite, and What Companies are in It? | Nasdaq