We are now on the third Saturday of May-Labor Month. And because it’s the third Saturday, it’s a revelation time again:-). We will now unpack the third content of our Labor Month Package which is “INVESTING vs TRADING”
A day just after the election, people are so excited for the changes that were promised to them during the election campaigns. Many investors in the Philippine Stock Market became active in buying shares which was reflected in the daily gains in the stock market portfolio.
Thus, in 5 market days after the election, the figures in my stock market portfolio began to increase value after long months of losses from the volatile market in the last quarter of 2015. My red portfolio is eventually turning green. I was gradually regaining my losses and had earned profits. Unfortunately, after a week of excitement, the green has turned red again. The hype slows down. Thus, the uptrend has started to plummet once again.
For veteran traders, this was a happy moment. For veteran investors, this is not their moment. For several newbies, this was a disaster.
For traders who intimately know their graphs, who have the time, who watches the market, the 5 day frenzy has been a feast. For value investors who are building wealth in a long term, though they painted smiles on their faces, many have wished the market not to go up too soon so they can buy more shares to grow.
For numbers of starting traders or investors, this was horrible as many of them have lost money. They bought stocks at a high price that started declining after their day of purchase. Then, because of fear that they might lose more, they panicked and sold their shares at a loss.
This is usual. People get excited, people will fear. Many lose money. Few will gain.
The question is, how do these few successfully ride on the stock market as their vehicle to wealth?
People make money in the stock market by either TRADING or INVESTING or by doing BOTH. Investing and trading are totally different ways to make profit in stocks.
What is INVESTING?
Investing is building wealth for a long period of time. That is why investing is referred to as “Long Term Investing” or boring style of making money. Investors buy stocks, accumulate them, and hold them for years.
Investors increase their money through re-investing their dividends, profits from sold stocks, interests into additional shares of stocks.
When markets fluctuate, investors are happy because they believe that the stocks in the market are on sale. Investors buy stocks during the downtrends with the expectation that prices will rebound and any losses will eventually be recovered.
Investors are typically more concerned with market fundamentals, such as price/earnings ratios and management forecasts. They are more concerned about the value that the companies they invested in will bring in the future.
What is TRADING?
Trading, on the other hand, is exciting but riskier compared to the boring investing. Traders frequently buy and sell stocks in a short span of time-within a day, week, month, year.
Traders profit through buying at a lower price and selling at a higher price within a relatively short period of time. Traders often employ technical analysis tools to find high-probability trading setups.
Traders generally fall into one of four categories:
- Position Trader – positions are held from months to years
- Swing Trader – positions are held from days to weeks
- Day Trader – positions are held throughout the day only with no overnight positions
- Scalp Trader – positions are held for seconds to minutes with no overnight positions
Can You Do Both?
Absolutely yes. You can combine this 2 methods to profit more while lowering your risks of losing more.
In general, both investors and traders can multiply their money through the stock market. Investors expect larger returns through long term of buying-holding-selling-re-investing. Traders, take advantage of both rising and falling markets through “buy at low-sell at high” strategy. A newbie just need time and dedication to read and learn more to make money successfully in the stock market.
P.S. 1: Please come back again when we open the last content of our Package next Saturday.
P.S. 2: If you liked this post, please feel free to share it with your friends. In the meantime, I invite you to join our subscription list to download your free e-book, How Did I Enter into the Philippine Stock Market-Mt step by step guide. The subscription form is just at the right side of this page.
P.S. 3: You can also visit the Truly Rich Club, listen to Bo Sanchez’ message on why we need to invest by clicking here. You may also join the club if you are interested.