Trading vs Investing - Showoff!






Well, everyone wants to make tons of money in stock market, nobody comes to do charity! 😜

While everyone is trying to figure out different ways and techniques to make profits, there are two approaches to which you can broadly classify all of them into. They are - Trading and Investing.

There are millions of traders who have made lots of money and who believe trading is better than Investing and of course vice versa.

So which one is the right approach?
The answer is both!

In cricketing terms, it is like asking the coach if straight drive better or off drive better??
Again, the answer is both! you need to know how to play the right shot the way for the right ball!

The trick is to understand the underlying mechanics and first practice before you can play for real!!

Trading:


In trading, typically one either buys and sells the stock within a day or maybe holds it for a few weeks max!

Traders generally look at the charts to identify certain patterns, trends and make a prediction if the stock will move up or down!

Mindset of the trader has to be like -> invest, make profits/loss and get out!

They don't care if the stock is a multi-bagger stock in a year or about future prospects of the business!

Just invest, make profits/loss and get out!

End-of-the-day, general practice is not to lose more than 0.25% of your whole trading capital per trade.

Just to remind again, when trading focus is on the price movements and charts, NOT on the underlying business and future prospects!


Investing:


This is where lots of popular billionaires like Warren Buffett, Charlie Munger, Peter Lynch, Rakesh Jhunjhunwala, Raamdeo Agarwal and many others have made lots of money!

Compared to trading, investing is much more relaxed approach - sort of sit calm and count profits 😜

In investing, the trick is to understand the underlying mechanics of stock market itself - i.e., when you buy a share you are a part owner of the company. So the focus should be on buying great companies at cheaper price!

Once you buy great stocks, just sit calm and wait for profits to grow.

The logic is pretty simple, if the company you bought is making more money every quarter/year, ofcourse the valuation of the company will go up every quarter or year! Hence, the stock price will grow!

Just to remind again, when investing focus is on the company's business and future prospects, NOT the price movements and charts like in trading!


Summary:


Be it trading or investing, just remember, end of the day it is all about predictions and gambling with your money!

Most of them including myself, encourage people to invest rather than trade, because of two main reasons:

  1. Time works in your favour if you are investing
  2. Comparatively easy to begin with. Just think of 10 products which see around you and invest in those companies, chances are that those companies will make more and more profits as the years goes by!

Remember, never trade like investing and never invest like trading!



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