On Wall Street you will find two groups of people, investors and traders. Investors buy and hold stocks for the long haul while traders buy and sell stock daily or weekly. Investors research industries and companies. They look at data and invest based on facts. Traders do little or no research. They look at charts and try to determine what the stock will do over the next couple of days. Traders are not interest in fundamental value.
A great number of people prefer trading over investing because they donât have patience to hold stocks for a longer period of time and wait for the fundamentals to take the stock price higher. Traders want to make instant profit so they jump in and out of stocks. You can make money by trading stocks but studies have shown that over time investing is far more profitable for a majority of people.
Based on numerous studies of individual investors, mutual funds, and active managers it seems that over 90% of active traders underperform the market. Investors that take the time to carefully research companies and are willing to hold on to them for a couple of years show better performance.
If you trade stocks you are subject to higher transaction cost and commissions. You also have to get the timing of the market right to buy low and sell high. Timing the market is easier said than done. Markets are very volatile and tend to go up and down quickly without any forewarnings.
I personally favor investing in a secular bull market cycle. My strategy includes buying commodities and stocks in a bull market cycle and holding it through out that entire cycle. There will be corrections along the way but the result over the long haul will be very positive as long as you pick a sound investment and hold it throughout a bull market cycle.
When I started investing many years ago I wanted to make fast money and I tried jumping in and out of stocks to make a quick profit. I soon realized that this strategy did not work for me. I was not able to get the market timing right and it was frustrating me.
I got half of the equation right. I found profitable mining companies that were in the midst of a secular bull market cycle. I wanted to maximize my profits by trading them. Since I was not too familiar with reading charts or able to get the market timing right this strategy did not work well for me.
I bought mining stocks that were rising in price. This industry had a very favorable outlook. Shortages were developing in base metals and prices were rising. Mining companies were turning huge profits as a result.
After I felt that the price on my particular holdings had gotten high enough I sold and waited for a correction. The correction never came. The stock kept going higher. When the correction finally came the price was far above the price I had sold at. I experienced this scenario numerous times.
What I learned from trading stocks is that itâs extremely difficult to get the market timing right and you are likely to miss out on some spectacular upwards move by jumping in and out of the stock. It is far easier to hold stocks in a bull market cycle that are going up in price for the right reasons.