There is a huge difference between investing and trading in the stock market. Although both involve owning stock, the effect on for market participants is very different. As an educator for investors, I get annoyed at all the people who talk about investing and then discuss or teach only short-term trading.
First, the time involved to trade requires much more time than investing. Short-term trading is a full-time job. Day trading requires you to be at your computer screen during market hours. It is very difficult to hold another job that pays the bills while you do short-term trading. Even if you are swing trading, it is still very time intensive. However, with my investing I monitor my holdings for about 20 minutes per week.
Next, trading is extremely time-consuming and difficult to learn in the first place -- it is the hardest thing I have ever done in my life. Many successful day and swing traders took 3-5 years of at least full-time work and study to learn. I have heard of people doing it faster than that, but that is the exception and not the rule. Whereas you can learn to be an advanced investor in a few weeks in my courses. In 30 minutes you can learn a technique that offers 5-50% a few times a year when a special situation presents itself.
Next, the money involved to learn. Trading is a very high-risk, low-odds-of-success activity. The vast majority of traders lose some or all of the money in their accounts trying to get good at it. (If you don't believe me, look it up on Google. There is plenty of research supporting this claim, including the Johnson report, the Hieronymous study, and the Odean study.) I have listened to several successful traders blow out several large accounts before finally getting it right.
On the other hand, owning stocks for the long-term has a built-in likelihood of making a profit -- stock prices typically go up over time. There are ways to lose money investing, and there are ways to make more than buy and hold (I have spent the past 25 years researching what those strategies are), but even if you do not know them, the odds are with you at least for the long-term.
The essential problem with short-term trading is that you must first determine the direction of short-term stock prices, which can be very volatile over brief periods of time, then make a big enough profit to cover commissions and all the other times when you guess wrong. Believe me, it is not easy to do.
In the end, most Americans need to learn how to invest, not to trade. Make sure you go to the right place to learn better investing strategies.
Written by Samory Borry
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