Trading Vs Investing
In this blog, the following topics will be covered.
Difference between trading and investing.
Which one is better?
So let's get started.
1st, What is the difference between Trading And Investing?
Trading is a process in which you buy and sell stocks to earn a profit in a short period. Whereas, investing is a process where you buy and hold stocks for a long period to earn a profit.
In trading, there is high risk and high reward. You can earn lakhs and crores in just a single day, but at the same time, you have the same risk of losing lakhs and crores in just a single day. Whereas in investing, there is slow profit (with the power of compounding), and a low risk of losing money. Here profits are high, but you have to wait for years to get a high profit.
In trading, you have to learn technical analysis. You should know how to read charts, and you have to be quick in decision-making. Whereas in investing, you have to learn fundamental analysis. You should know how to read annual reports, how to check a company's Financial condition etc.
In trading, you have to work actively to earn money. Whereas in investing, you don't have to work to earn money, you just need to select good companies and invest regularly in them. If you don't know how to select good companies then you can buy a portfolio of stocks in mutual funds and pay a minimum fee of 1% of your profit to experts who will manage your money.
George Soros, John Paulson, Nick Lesson, Jesse Livermore, etc, are the names of some famous traders.
Warren Buffet, Charlie Munger, Benjamin Graham, Peter Lynch, etc are the names of some famous investors.
Statistically speaking, 99% of traders have lost their money in trading. In the short term, they gain profit, but over a long period, they lose all their money. Jesse Livermore, one of the famous traders, made 100 million dollars in the 1929 market crash. But on Thanksgiving day, November 28, 1940, just after 5:30 pm, Livermore shot himself with a Pistol in the cloakroom, where he usually had cocktails. He suicides because he had gone bankrupt for 3rd time in his whole life because of trading.
On the other hand Warren Buffet, the world-famous investor has a net worth of 93.4 billion dollars. And this amount he has earned from his Investing career.
In short,
In trading, your approach is short-term. There is a high risk and high reward. You have to understand technical analysis.
Whereas
In investing your approach is long-term. There is low risk and high reward but you have to wait for a long period. You have to understand fundamental analysis or you can invest in mutual funds.
2nd, Which one is better?
Both are better. Both have advantages and disadvantages. But according to me investing is a better option for most people. Because many people won't be able to actively trade. Many are college students, some are doing jobs, and some starting their businesses. Therefore they won't be actively trading every day and investing would be considered a better option for them.
They can spend weekends finding good companies and can invest in that company or can start a monthly SIP in some mutual funds or small cases which will choose companies on behalf of them charging a small amount.
But if you can take out time for trading then you can do trading. But there are many risks involved in trading so you have to manage all the risks to earn profit. You have to control your emotions of fear and greed.
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