The goal of investing is to gradually build wealth over an extended period of time through the buying and holding of a portfolio of stocks, mutual funds, bonds and other investment instruments. Trading, on the other hand, involves the more frequent buying and selling of stocks, churning of MF portfolio, jumping to new products, with the goal of generating returns that outperform buy-and-hold investing. The topic traders vs investors have been the point of discussions and all value investors never prefer the first way.
The great Benjamin Graham attempted to define it as such: “An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return.” While markets continuously fluctuate, investors try to slow and traders increase their trades.
Investors often enhance their profits through. Investments are often held for a period of years, or even decades, taking advantage of perks like interest, dividends, and stock splits along the way. Investors are typically more concerned with market fundamentals, such as price/earnings ratios and management forecasts.
Trading profits are generated through buying at a lower price and selling at a higher price within a relatively short period of time. So time and timing are most important factors. You want to invest at the lowest price, which is very hard to guess. Then the trade is sold in the shortest time possible to look for a new trade.
Difference between Investor Vs Trader
- Time Horizon: Investors tend to hold assets for longer periods of time than traders.
- Capital: Investors invest a huge part of net worth in securities whereas traders limit capital to the amount of loss they can bear. Someone risking all in trading is unfit or overconfident.
- Diversification: Investors typically try to build a diversified portfolio of financial products such as such as stocks and shares, bonds, derivatives or funds. Other forms of investment include real estate and commodities, such as gold.
- The principal behind returns: Investors look for compounding whereas traders look for benefit arising out of price change. They look for events which can bring up or down the prices.
- Interest: Investors have an interest in the well-being of the company and management. They look forward to news related to their investments. Traders have not interest how the company is managed. They change their investments frequently.
Are your a Trader or an Investor?
Well here are some statements which will help you decide…
And, there is nothing called Partial Trader or A Partial Investor. Either you do all things an Investor do or not. This is behavioral trait and hence no hybrid should exist for success.
I believe that people lose a substantial amount of money in the markets is because they think they are investing when in reality they are just trading. To a person unfamiliar with the financial markets, these two terms might sound more or less the same. Experienced can easily tell the difference between the two. But many investors also become traders. They constantly forget the true meaning when the opportunity comes knocking on their door.
Many times people apply both stereotypes at the same time.
What should you do?
First, you need to determine how much time you are willing to devote to going through charts, reading charts and going through company basics. For people who are can only spend the marginal time to conduct a background check on a company, it is advisable that you consider long-term investments only.
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