Evolution from a Trader to Investor

2 years ago JCprojectfreedom 0

 

I borrowed a book called “Evolution of a Trader – Fundamental Analysis and Position Trading” from the library. I think the book is interesting as it talks about fundamental analysis and how you can enhance your gain by swing trading. I recalled just a few days ago I met up with my trusted financial advisor. He recalled that about 4 years ago, he started to share with me about value investing. He introduced to me Fifth Person’s online course. I recalled my mentor that he is a value investor and not a good trader. He mentioned to me that trading will not be as profitable as value investing. I agreed that my wealth did not grow much during my earlier years trading in stocks. I will like to discuss the differences between trading and investing.

Capital

Day trading or short term trading needs to have a certain amount of capital to make it sustainable for income. In addition, you need to cater for the commission and taxes for entering and exiting the trades. If the capital is not big enough, after deducting all the commissioning and taxes, it will hardly cover your profit. I tried this in 2008 for an entire month of day trading as I was on my garden leave. I made about SGD 3k but it was very stressful and you need to be fast to react to the few ticker movements to make a profit.

Time

Day trading will require time commitment. You need to be in front of the screen, fully concentrated to look at the charts, 1 year chart, 1 day chart, 15 mins chart and 1 min chart. Most of the actions will happen in the first two hours when the market opens and 1 hour before the market closes.

Investing can be done anything because the research work can be conducted anytime. I will say probably spend 1-2 hours a day to research on your present portfolio and those in your watch list. Then you just need to follow up on the quarterly results to review the companies. This is more suitable for most working population.

Discipline and Patience

Both trading and investing will require discipline and patience. Day/short term trading will involve more active price involvement, looking for the right setup and trigger point. Investing involves waiting for the right swing and give it your best shot. It means you need to wait for opportunity to acquire the business when there is a mispricing. This mispricing is a short window and will be gone when everyone starts to realise it.  Both trading and investing require risk management. Both will require to understand what is the value at risk and the potential return, whether this return justifies the risk.

Return

Speaking of return, I will mention that day or short term trading can generate high return fast, compounding on daily or short term basis will grow the amount. However, once a trader makes a mistake or a series of mistakes, it will wipe out all the gains. For wealth accumulation, I will suggest to take the route of investing, taking a longer time frame to compound and grow the money.

Conclusion

In conclusion, investing is recommended to build your retirement sum, reinvestment of dividend and new capital will help to speed up the compounding effect. Trading is meant for income and you need to spend time on it.