WHY TRADING
IS ALWAYS LOSS-MAKING IN STOCK MARKET AND INVESTMENT IS PROFITABLE?
WHY NEVER
TRADE AND ONLY DO LONG TERM INVESTMENT?
Please go through the below article to understand
the difference between STOCK TRADING AND INVESTING,
Please also go through the below article to
understand the different type of ‘investing’ based on duration such as ‘what is
long-term investment?’ , ‘what is medium-term investment?’, ‘what is short-term
investment?’
Now below we discuss why
investment is always rewarding and speculative trading is always bad,
- MORE
INVESTORS CAN MAKE MORE MONEY THAN TRADING AND THERE IS SUFFICIENT RATIONAL AND EMPIRICAL PROOFS: No one has ever become wealthy or millionaire by doing stock trading (some exceptional cases barred- but they again most out of them couldn’t sustain their wealth consistency from trading). While we have a lot of examples like the great Warren Buffett who has become a living legend and god-like in investment arena. On the top of that he has been consistently the world’s no.2 richest person solely because of investing wealth, beating the competition in money-making from all fields such as business-men and so on. By the way traders do not come anywhere near. There are hundreds of other ‘investment’ success stories and many of them which became legends like Peter Lynch, John Templeton, Bill Gross, John Bogle and many more. In India even people not frequent with stock investing are aware of Rakesh Jhunjhunwala, a commoner who became India’s biggest individual investor all by himself. There are many other names like Ramdeo Agarwal, Motilal Oswal, Parag Parikh, Madhu Kela, Samir Arora, Madhu Kela, Mr. Ramani and many more who have engrossed their names in successful investing in India. We do not know of any such success stories in stock trading. The epitome is that traders just can’t become wealthy as much as investors and in as many numbers as there are in competition with trading. Suppose 10 out of 10 lakh traders are able to earn consistently (Rakesh Jhunjhunwala once said so), then in comparison so many lakh of investors definitely become 100-1000 times more wealthy.
The point is there is no evidence
suggesting so far, that trading is better rewarding in comparison with
investing and to maximum persons. (Some of you will say that Jesse Livermore
(died in 1940) made millions in trading. Yes, he was a master speculator, and
very few like him were born in world and are right now. He made millions
several times and lost all of them as well. He almost became crazy in his
last days, before he did suicide in a hotel room. Till date, he is regarded as
the best genius in trading and speculation world and a legend. There are many
names presently as well that are famous in trading and very successful, but
very few and as I explain in subsequent points, they are highly skilled, smart
and intelligent.)- TRADING
REQUIRES MORE EXPERTISE TO MAKE MONEY, INVESTING IS SIMPLER:
High skills and knowledge of technique is necessary for ‘any’ genuine
success in trading. From complex charting tools to behavioural analysis;
there is almost no end to the parameters and criterion that a trader can
follow-almost end number of (mostly complex) theories, trading
techniques/systems/softwares and so on , still there is almost zero
consensus about anyone robust and full proof technique for trading. While
there are very few approaches of investing and each are considerably
successful with huge following at the same time there is almost complete
consensus about some approaches and basic tenets and principles of
investing. Anyone can invest even without much experience and training or
knowledge by following those simple principles (however it do demands
time-but trading demands several times more time).
- TRADING
REQUIRES MORE TIME, IN FACT A LOTS OF IT THAN INVESTING: In
trading you have to devote a lot lot of time to study and observe as well
as take decisions and implement them. It almost becomes your full time
business. While investing as we know now, is simple, so it requires only
occasional check up or monitoring of your portfolio (list of stocks),
ideally quarterly or yearly. In trading you are on the tenterhooks all the
time as you are holding some or the other position and you have to monitor
a lot of things including world markets which are correlated with it,
while in investing you are not bothered about such things. You simply make
your decision, invest and relax. This is always the steps. Thats it. That
is investing. The fact is that it takes so many years and an above average
sharp intellectual and speculative and risk taking skills and temperament
(all of which are not common- and even lesser common to be in one person)
to learn in trading while investing is not so demanding. It requires
more common sense than uncommon smartness while it gives you a lot of room
for learning without getting wiped out. You become an investor instantly,
and you can become a successful investor once you know it. It is never
like that in trading.
- TRADING
IS STRESSFUL AND INVESTING IS NOT: As you saw in trading you
need a lot of knowledge, there is confusion about selection of parameters
of entering and exiting any trading position. There is an inherent
requirement for urgency in actions. It demands a lot of time and
observation across markets across asset class and geographies which may
make you awake at night because you have to check out some news in the USA
or some development in Europe and also because you just won’t get the
sleep because you have a large position which depending on tomorrow’s
market can give you profit or losses. All this invariable brings stress to
majority of people.
- You can lose everything or a lot of money in trading, especially when you are new and do not follow loss cutting technique, in trading. Some times you lost all because you are consistently wrong and you must keep booking losses to exit your positions so that your any one position doesn't give you hell. But in investing even worst performing stock rebound over time and gives you profit or sometime, the worst performing stocks give the best return. There are exceptional cases of wealth wiping out when you have hard luck and you have obviously made mistake in investing approach. Apart from that long term investing is and has always been rewarding and likely to remain so. You are not under any pressure to book your losses, you buy some stock and hold to it. If you have followed the basic principle of investment selection, you will earn out of it 99 times out of 100. Definitely.
Apart from this, you can search (we will try to come out with detailed article on that) how all the big names in trading (trading coach, authors, successful traders etc. like Mark Douglas, Jack Schwager author of famous market wizard book series and so on) agree unanimously that trading is extremely difficult to succeed for a layman and the proven fact, again all of them agree that less than 5% of them earn money that too after long hard work of many years! Are you sure, you want to take that chances to be in this less than 5% genius lucky group? And what is the probability of you succeeding in that? For those who want to take up all the toil and moil and pursuade trading as a career and devote long years behind and and FULL TIME all day, and accept the failure or success whatever you get, then good luck; but for the rest of you THE FACTS ARE JUST VERY CLEAR.
In a
nutshell, for you and me, for the masses and for everyone INVESTING IS ALWAYS
DESIRABLE AND TRADING IS ALWAYS AVOIDABLE.