NEW YORK ( TheStreet) -- The difference between an investor and a trader is time.
Investors have it. Traders don't.
Everyone who loved Amazon at $400 hates it at $300. Jim Cramer writes that there is an "Amazon Army," companies that prefer growth to profits, which is now "toxic" to your portfolio. Richard Suttmeier sees a bubble that has popped.
In the near term, they're right. Fashions have changed. High multiple stocks like Amazon are out of fashion right now. But for investors, with a longer time horizon, this may be like seeing Apple (AAPL) at $400 a few years ago.
Traders follow the moves of the market, watching one another as much as the stocks they might buy, looking for momentum they can follow. They worry about the pennies that high frequency traders might grab on ordinary purchases, and the dollars they might grab on sudden moves, because they think they can grab those pennies and those dollars.
Investors should keep a list handy of great American companies, and buy them when they're being hated on. If it's a short-term hate, maybe it won't hit your target price and you'll have to wait. If it's a trend, like Apple's plunge from $700 to $400 after it first announced a dividend, or Amazon's recent fall of 25%, you may find yourself with a bargain.
Buy the bargain, put it in your portfolio, then go back to your list and wait until another bargain comes along. Keep the rest of your money working in a broad-based mutual fund with a low expense ratio.
Investors are like the $10 bettor at the horse track. You need to nibble, not grab with both hands. Then just hang on, until your stock is so beloved it becomes overvalued. This is how Warren Buffett got started. Now he has to buy whole companies, and his work is harder.
This does not mean you won't take losses. The value of my account plunged nearly 50% during the Great Recession. But now it's up nearly 50% from the previous top.
I'm no genius. Nearly everyone else who could hang in is doing as well. I'm not playing to beat the market. Most of what I have is in mutual funds. The individual stocks I buy are truly "mad money."
Sometimes I get burned this way, buying shares that still have room to fall. I got back into Amazon too early. But I was underwater on Apple for months, too, and it's now up 27%. I bought Walgreens (WAG) last year, it faltered a little but is now up nearly 18%. I bought Aflac (AFL) two years ago and it's up 30%.
The fact is, Amazon at $300 is the same company it was at $400. Every dollar that comes in the door leaves to fight a new battle. So Amazon is talking about building its own phone, making its own chips, about making its own deliveries and deploying drones.
Based on its own strategies it's doing well. Sales were up 23% from the first quarter of last year to this year. The company even booked a small profit. It could still pay out its long term debt from cash, today. It's still a cash flow machine.
So what if it's out of fashion. Let traders buy fashion. I'm playing for my retirement. If you're doing the same, I say, buy solid companies that are completely out of favor and wait for the traders to change their minds. I think your patience will be rewarded.
At the time of publication the author owned shares of AMZN, AFL, AAPL, WAG and AFL.