Definitions help Clarify Mindsets

How do investors think?

I want to start by defining the general behaviors of four different types of people. Granted, some people cross into all four of these, but the vast majority of people who are saving for retirement should fall into only one category if they are wise. The four types are owner, investor, trader, and speculator.


A business (or investment) owner is an individual who owns and operates a business, small or large, with the aim of deriving profit from its successful operation. Owners tend to make decisions to invest in their business based on a long-term horizon. The goal is to see the business grow resulting in more profits over time. They are investors.


An investor is a person who commits capital with the expectation of receiving financial returns. The goal is both income in the form of interest or dividends and profits from the sale of investments at some point in the future. I believe wise investors think like owners. The results often create long-term capital gains. That is investor-speak that means, “I paid $10,000 for an investment ten years ago and it is worth $25,000 today. So I have a capital gain of $15,000 on my original investment.”


This term is often used of those who are frequently and actively buying and selling investments. Some traders think weekly, but many buy and sell investments during a single day. A day trader often executes a relatively large volume of buy and sell trades to book profits based on the upward price momentum of a particular stock. Their goal is to profit from very short-term price movements, resulting in short-term capital gains. If this were easy, your financial advisor would do it for you. It isn’t easy and it is very risky.


This type of investor is willing to assume a large business risk in hopes of obtaining commensurate gain. Many would view this type of activity as gambling. In many ways, this is like being a gambler. There are many losers and very few real winners.

Thinking like an owner-investor is the best way to maximize returns and minimize the work involved with investing. In fact, traders and speculators are really not thinking about ownership in the same way that the owner of a Culver’s franchise thinks. Traders would want to buy a portion of a Culver’s restaurant in the morning and sell their share of the restaurant in the afternoon or by the end of the week. Speculators might buy shares in a new burger chain that might not have a track record, but that appears to be growing quickly.

The Benefit of Investor Thinking

Most things in life are not immediately profitable. It takes time. The prudent investor recognizes certain “laws” are at work that include a time element. For example, the Rule of 72 illustrates the impact of a certain growth in value in terms of years rather than hours or days.

The Rule of 72

 When I teach most investors, it is not unusual for them to acknowledge they have never heard of the Rule of 72. Understanding that rule helps investors think long-term and think about quality investments. If you invest in CD’s and savings accounts, it will take a long time to double your money. If you find other investments that pay an average of 9% per year (stocks, ETFs) you will see your money double much more quickly. The sooner you start, the more the doubling will astound you.

How long do you want to wait? What about inflation?

What Owner-Investors Do Not Do

If you have this mindset, then emotions play a very small role in the decisions you make. You want information as a business owner. You want to know what your costs are, what wages have to be paid, and what profit is likely this year and in the next five years.

Because of this more logical approach, you won’t sell your business during Covid-19 or when there is a recession. A wise business owner is prepared for times when business is slow, or foot traffic (or web traffic) is reduced due to a mid-winter blizzard. You don’t sell your business this week and try to buy it back the next week when the sun is shining.

The Results of Thinking Like an Owner

Pretend that there are only three companies that make automobiles. Tesla, Ford, and GM are the three in this fictious US-centric fictional world. Which one is the best investment? Some people buy Tesla vehicles, some buy Ford vehicles, and some buy vehicles made by GM. They all have their reasons. That will be something we can explore in a future post. You see, if you are going to invest in one, two, or all three, your ownership decision should be based on some rational thinking and conclusions. When you buy shares, you become a part owner.

The following two graphs illustrate a long-term perspective of our investments. These results come because I think like an owner when I evaluate and purchase an investment. Thinking like an owner pays dividends, pun intended.

Our dividend growth by thinking like an investor 2011-2022
Dividend Growth matters when there is inflation. This is thinking like an investor.

An Investor Quoted

“I likely don’t think like an investor, as the average investor is probably more likely to be dealing with survival in the short-term and not long-term. I am more likely to be thinking like an owner especially since the majority of what I own is owned 100% such as the real estate assets. I think more in terms of owning assets and managing those assets more like I would a business. So, whether the asset is real estate or a stock or a financial investment I own somewhere in the world, I want to maximize the return on these assets with a minimum amount of risk.” – From the Fidelity Investor Community