What’s The Difference Between Stock Trading And Investing?
There are lots of terminologies/jargons in the world of investing. Most of it is completely straightforward but some depend on the idea of how you will sell and buy stocks. While there are several schools of thoughts, there are 2 very broad categories in this world: the investors and traders.
Stock trading is the act of buying and selling stocks frequently, especially when the trader believes that there’s a short-term benefit/advantage to do so. The short-term benefit/advantage is very important. Your goal as a stock trader is to earn money fast. What the underlying companies do or sell aren’t as important as you believe that price per share is incorrect and will soon be corrected to trader’s advantage.
Imagine yourself investing $10 weekly from 2000 to 2016, and now ended up with millions of dollars. Over 16 year-time, you made that $10 into lots of money due to your patience, the compound interest and because of a really good stock.
The investors usually take long term views. They should know the factors that make a company healthy which include effective management, good financials, productivity, happy customers, good products, earning and revenue. The health of a business is directly contributing to ROI or return on investments.
What’s better, Long Term Investing or Short Term Trading?
Both of them had their own advantages. The stock traders are providing valuable liquidity to a maker. In layman’s term, if there are people who are willing to buy something that you are selling, you will have an easy time of selling it. Likewise, it there are many sellers, you’ll have less trouble with buying it. If the market were entirely composed of people who are holding to long term investments, you would have fewer transactions.
On the other hand, investing is better for the companies. Due to the fact that public companies have a board of directors that are responsible to the shareholders, the needs of shareholders are on the mind of the board. Those kinds of needs should aid to guide the decisions of the company. When the investors plan to take long-term investment in a company, the management will have more freedom in making decision for the long term success.
Warren Buffet’s Take On Investors Versus Traders
Should You Be an Investor or Trader?
The choice is entirely yours. Stock trading requires lots of time and you need to pay great attention to the market timing. You will have the opportunity to earn lots of money fast, but you also have the risk of losing money fast. Investing for long term needs more research about the fundamentals of the company, buy you might end up years without having anything. There’s still the probability of losing money because of the fundamental changes in business, not because of the market timing.
The greatest risk of short-term investment is never-knowing enough. Whereas by having investments in great business (the successful ones with histories that you can count on and coherent long-term plans), you can surely be a successful investor. All you need to have is time and patience.