Investing vs Trading

Introduction

As the title suggests, we’re talking about two concepts today. What is investing, and what is trading? You may think that these two terms are the same, but they’re very different. Let’s go in-depth into both, and compare them afterwards.

Investing

You might be wondering why I’m talking about investing here. After all, isn’t this entire website dedicated to it? Well, as it turns out, there’s a simple but important detail to investing that I don’t think I’ve mentioned before. Investing is always for the long term. Since we’re mainly talking about stocks here, that means buying stocks and holding them for many years. When investing, you want to be doing in-depth research into the company (fundamental analysis) to make sure the company is strong and can last long into the future.

Trading

Based on that, you might be able to guess what trading is. It is buying stock and selling it shortly afterwards. I’m talking weeks, days, sometimes even hours. When trading, you don’t care about how strong the companies that you’re buying into are. All that matters is the trends. You have to be able to identify which stocks are going to go up soon. This is called technical analysis.

Comparison

So, which is better? After all, that’s the question we’re trying to answer here. Should you hold stock for the long term or the short term? Hopefully I’ve emphasized this enough in previous articles and on my website in general. If I haven’t, I’m a disgrace to all investors out there. The answer is investing. You should be holding stocks for years to maximize returns. Let’s take a look at why.

Returns

The stock market works best in the long run. Every strategy that I’ve mentioned on my website, from growth and value investing to dividend investing, has the word investing in it. They’re all looking to the far future. Valuation and fundamental analysis? These are critical strategies when researching stocks, and they are all long-term. It’s widely acknowledged that holding stocks for a long time will give you better returns than trading.

Risk

Investing wins in the risk category too. Trading is far riskier than investing. It is basically impossible to predict trends with 100% accuracy, and if you’re wrong, you’re probably going to be left with worthless stock since traders don't care about how strong the company is. Thus, trading is often heavily luck-reliant. With investing, though, as long as you do careful research, chances are it’s going to pay off.

Conclusion

To sum it all up, always invest for the long term. It will turn out way better for you than trading will. For a comprehensive understanding of fundamental analysis, which you will need for investing, watch my two videos on it under the Online Course tab. I will warn you, it’s heavy stuff. There’s a lot of information, but if you can get even a little bit of what I talk about, you will benefit from it. Good luck!