The market exists independently of how we think or feel about it. We buy every stock with the hope and expectation it will perform, but with the humility to admit we could be wrong. That determination is up to the market, not us.

Which is why I always chuckle when I hear how many choose to categorize the positions within their portfolios. Certain allocations, they explain, are "trades" while others are "investments." Trades are often made responding to a news headline, such as the Carnival Cruise (CCL) or BP (BP) (disaster, and are usually held for only a short while. Investments come after lengthier research and analysis and are often held -- oftentimes even at a significant loss -- for an indiscriminate and usually extended period of time.

How these investors decide which is which remains a mystery to me. In reality, the market doesn't know how long you've spent analyzing a position, if you've read the annual report or just caught the ticker on cable news. It also doesn't know how long you plan on holding it. Markets are indifferent to our perceptions about what should happen. In most cases, what usually ends up impacting a company's prospects are circumstances very removed from those which prompted us to take the position in the first place.

To that end, one should never decide how long a position will be held, whether it will be a "trade" or "investment" in advance. Rather, I maintain that I'm a trader when I'm wrong and an investor when I'm right, meaning that losing positions get traded away and closed while winners get maintained. The point is that the market makes the decisions, not me.

Some Trades Make Good Investments:

Source: CQG

Procter and Gamble (PG) recovered smartly in the decade since 2000's major earnings miss.

For example, I'm reminded of household consumer giant Procter and Gamble (PG), which lost 32% on March 7, 2000, after warning it would not meet earnings estimates. Those who bought the drop as a "trade" might have been able to scalp a few quick points, as shares quickly bounced from $26 back over $30. Yet those who instead saw the stock as an "investment," or rather permitted the market to tell them it was, were handsomely rewarded. Shares never touched those levels again and have steadily climbed 156%, not including dividends, over the past decade.

Other Investments Make Lousy Trades:

Source: CQG

Cisco (CSCO), a popular "long term investment" during the 90s boom, still trades well below those levels.

Conversely, stocks like Cisco (CSCO) and Intel (INTC) purchased as "long term investments" during the 1990s tech boom ended up as decade-long disappointments, lugged around by thousands of investors intent on seeing their original vision realized, even though the market itself wasn't confirming their thesis. Although recently improved, both remain more than 65% below their previous highs.

Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC