Trading Vs Investing -- Different ApproachesWe often hear the words investing and trading used interchangeably. Are these really the same thing? Not quite. Although they're both related to buying and selling stock, there are some fundamental differences between trading and investing. Let's explore the main ones....
This is an important difference. Trading involves holding on to stocks for very short intervals -- from seconds up to a few weeks. Investing, on the other hand, implies holding the stock for much larger intervals -- several months to several years.
This is related to how long you hold on to the stock. Traders, because they hold on to stocks for a relatively small period of time, buy and sell stocks frequently. Investors tend to deal with fewer stocks and space their transactions over time.
Traders completely ignore the fundamentals of the company behind the stock. Their stock-picking criteria is based solely on stock price movements -- the technicals. Investors typically use Fundamental Analysis to pick their stocks preferring to ignore short-term price fluctuations. They pick companies with strong fundamentals whose stock is selling at a discount. No points for guessing which approach we favor. Fundamental Analysis, in our opinion, works very well in generating solid returns on your investment in the long run.
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