Trading Vs. Investing

RadhikaSona · #1 19th October 2007, 06:38 PM

Many people confuse trading with investing. They are not the same.

The biggest difference between them is the length of time you hold onto the assets. An investor is more interested in the long-term appreciation of his assets, counting on that historical rise in market equity.

He’s not generally concerned about short-term fluctuations in prices, because he’ll ride them out over the long haul.

An investor relies mostly on Fundamental Analysis, which is the analytical method of predicting long-term prospects of a particular asset. Most investors adopt a “buy and hold” approach to assets, which simply means they buy shares of some company and hold onto them for a long time. This approach can be dangerous, even devastating, in an extremely volatile market such as today’s BSE or NSE Indexs Show.

Let’s consider someone who bought shares of XYZ Company at their peak value of around Rs.650 per share at the beginning of the year 2000. Two years later, those shares are worth Rs.100 each. If that investor had spent Rs. 65,000/-, his net loss would be Rs.55000/- ! I don’t know about you, but losing Fifty Five Thousand Rupees would be a relatively big loss for me.

Many investors suffer such losses regularly, hoping that in five or ten or fifteen years the market will rebound, and they’ll recoup their losses and achieve an overall gain.

What most investors need to remember is this: investing is not about weathering storms with your “beloved” company – it’s about making money.

Traders, on the other hand, are attempting to profit on just those short-term price fluctuations. The amount of time an active trader holds onto an asset is very short: in many cases minutes, or sometimes seconds. If you can catch just two index points on an average day, you can make a comfortable living as an Trader.

To help make their decisions, Traders rely on Technical Analysis, a form of marketing analysis that attempts to predict short-term price fluctuations.

GauravC · #2 11th February 2008, 12:42 PM

thank you , keep posting .. in fact the entire FAQ thread u started is very good for noobs .. cheers !

ssureshi · #3 17th February 2008, 11:30 PM

Nice. Actually one should play a dual role (Trader & Invester) in the market to get reasonably good return.

rejivijayan · #4 1st April 2008, 06:39 PM

Good, Very Informative

share bull · #5 1st April 2008, 07:00 PM

It has been proven beyond doubt that equity invariably fetches far superior return when you stay invested in good stocks for a reasonable period of time.

The methodology and mind-set in investing and trading are diametrically opposite. What one needs to do is identify good stocks backed by strong management and the company's ability to grow (depending on the company & the industry to which it belongs) and invest. One can follow SIP method if you are investing during a sustained period of volatility.

The catch in making money in stock market is not timing the 'buy' but in defining your greed levels and time the 'sell'. If you follow the SIP, you may exit such quantity that would essentially recoup your total principal invested and allow the balance to grow.

If your returns on the short term are disproportionately good, one should exit and pay short term CG tax. Ideally, it would be advisable to wait for an year's time and make a tax free gain.

In trading, notwithstanding TA et al, the problem is the purchase tips are more often than not driven by rumours, insider trading etc where the operators/punters have a major role to play. In such cases, you may find yourself investing at a time when a major player is actually off-loading, leaving you with the baggage.

In my opinion, although it is tempting to make quick money within a day and that too without any actual outflow of cash, you will earn fairly good return if you stick to investing.

mahesh_nagavkar · #6 13th April 2008, 08:31 PM

long term is not good ...
i have purchaced m&m 71 shares @943 on dec-2006 (don't know date excactly) i'm in loss as todays price for m&m = 619.00 .
now a days i become a trader / short term invester. and believe me its better..

monkincyberspace · #7 24th April 2008, 08:39 PM

Good informative thread..Thanks a lot.

sudoku1 · #8 24th April 2008, 08:48 PM

Quote:

Originally Posted by mahesh_nagavkar

long term is not good ...
i have purchaced m&m 71 shares @943 on dec-2006 (don't know date excactly) i'm in loss as todays price for m&m = 619.00 .
now a days i become a trader / short term invester. and believe me its better..

friend, a long term holding simply does not mean 2 buy a stock , forget it ,wish a dream from the sale (at lofty levels}aftr say....3-5 yrs .........
one has 2 keep a consistent track on co's performance....its fancy among the players ,etc....
it happens sometimes that even a superb co is unable 2 pick up in mkts just cause it's not fancied among the players for various reasons....large equity , very low equity , bulgy book value but no generous management...(MRF)..
SO DONT LOOSE HEART just cause m&m did not deliver.....
do v break our own teeth just cause it bit our tongue...?

djsinha · #9 24th April 2008, 11:51 PM

Quote:

Originally Posted by sudoku1

friend, a long term holding simply does not mean 2 buy a stock , forget it ,wish a dream from the sale (at lofty levels}aftr say....3-5 yrs .........
one has 2 keep a consistent track on co's performance....its fancy among the players ,etc....
it happens sometimes that even a superb co is unable 2 pick up in mkts just cause it's not fancied among the players for various reasons....large equity , very low equity , bulgy book value but no generous management...(MRF)..
SO DONT LOOSE HEART just cause m&m did not deliver.....
do v break our own teeth just cause it bit our tongue...?

Good one Sodoku.....Infact investing never means you don't blindly buy a company. It means you buy into a story....and wait for the story to unfold....in this process you ride through the whole rally. Also it's advisable not to buy into some company blindly because it was a investor's favorite for a long period of time. Anything that goes up must come down. For example, suppose you bought infosys at the beginning of 2007 at a price of say 1900, you'll still be in loss today....beacuse at that time (in 2007) infosys was at it's peak....investors were frenzy...and in investing commandments whenever people get mad about something...it's the time to offload. And when people are very bearish on some counters, but amazingly the company is good, mgmt is good.....and you find lotz of promise into the company...it's a buy time.
I remember, i read somehwere...that Buffet once bought company for some Rs X.....after sometime it plunged to Rs X/2...still he holded onto the comapny.....finally after some two to three yrs ....it gave him a massive 500% return....Now that's investing.

@mahesh_nagavkar: I'd advise you not to loose heart. When you feel upset....just think of Buffet...You haven't lost even 50 % of your buy price...as he did......so cheer up. And make a thorough analysis of M&M as a company. If you still think after the analysis...that you shud keep your money there...then forget everything else. Just wait.

At last I'd say that ........fundamentally analysing a company is very tough.....you have to see a hell lot of factors. Compared to that technical analysis is a lot more easy. But rewards are also more in fundamental investing than in trading.

Happy investing
DJ

ajaygodha · #10 25th April 2008, 12:36 AM

A great company is not a great investment if you pay too much for the stock