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Last Updated : Jul 08, 2020 02:02 PM IST | Source: Moneycontrol.com

Test match vs Twenty20—the difference between investing and trading

Investors tend to focus on bigger returns and believe in the power of compounding. Traders take advantage of swings in the market and exit positions to earn frequent profits even if the pickings are small.

If not all, there are still many, many people who confuse trading with investing though the two are far apart.

It's the attitude--towards investment and profit-- that is the differentiator. While profit is the ultimate goal for both, it is the duration, outlook on growth and risk appetite that separates the two.

Investors tend to focus on bigger returns and believe in the power of compounding. Traders, on the other hand, take advantage of swings in the market and exit positions to earn frequent profits even if the pickings are small.

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"Investing is like riding a bicycle and trading is like driving a Lamborghini. Investing is like playing a cricket match, your mentality and risk appetite determines if you are fit to play T20, 50-overs ODI match, or a five days Test match," wrote market veteran Vijay Kedia on Twitter.

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Investment is intended towards long-term goals while trading involves short-term strategies. Patience is the key to successful investing.

“Successful Investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: you can’t produce a baby in one month by getting nine women pregnant,” Warren Buffett said.

The fact, however, is that the majority of investors turn into traders.

"Almost 95 percent of people end up being traders and not investors. They do not hold stocks for a long period. The biggest secret of wealth creation, when the potential is huge, is to hold the stock for at least 3-5 years," said G Chokkalingam, Founder of Equinomics Research & Advisory.

A trader is highly affected by the cycles of the market or even disruptions like COVID-19. On the other hand, investors are more likely to ride out short-term losses.

Investors' biggest strength is their belief in the power of compounding, which is not easy to pick as it takes experience and patience.

As Morgan Housel, Partner at Collaborative Fund and former columnist at the Motley Fool & Wall Street Journal, told CNBC-TV18, "It is not intuitive. Compounding does not work for two-five years. It works for the next 20-30 years. For instance, Warren Buffett added most of this wealth after his 65th birthday."

The recent turmoil in the market because of coronavirus pandemic has shown that it takes courage and discipline to be a smart investor.

While such black swan events have a strong short-term impact, in the long term, patience always wins. The only people who lose are those who try to time the market.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Jul 8, 2020 01:57 pm
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