There are two types of people in the stock market.One is an investor and other is a trader( stock trading vs investing ) . But the confusion between the two terms exists and we don’t know what we are actually. An investor is one who does not keep stop losses for his positions.
Warren Buffet says even if the exchange shuts down for the next 5 years, he is not fearful about his position.He does not look for quick profits.His time frame is from 5 to 10 years.He looks for a growth of the company and economy in general.He is concerned about the fundamentals, not the technicals. He sees the value of a stock( value investing ), not the price.He does not have a short-term target and stop loss. Investment requires patience and we need not look at the price of the underlying security daily. Price may fluctuate but we know the value.
Many of us think that we are investors but actually we are traders.When a stock falls we exit the position immediately and look for the one which has potential to go up immediately. We keep a psychological stop loss in our head. That is not investing.It is trading.
The trader is the one who looks for the technicals. Most of us try to trade without knowing the technicals. As I said we look for quick gains.But most of the time we do this not knowing the technicals. Neither we know the value of a stock nor we know the technicals. So neither we can be called traders nor investors. We can be called speculators. Warren Buffet says risk comes from not knowing what we are doing. Hence we should know what we are doing. We are speculating if we are not knowing either the fundamentals or the technicals of the security.
Retailers most of the times says that they are in loss.This is clearly because speculation is a kind of gamble. Speculative money should be less.Because most of the times it will end up in a loss.
So in this situation what we can do?
1.If we want short term gain from the market we should learn technical analysis .
2.If we want long term gain we should learn how to find the value of a stock and the future prospects of the company that is fundamental analysis .
3.We can invest in mutual funds , hedge funds or we can rely on portfolio managers. Another thing we can do is we can buy some blue-chip stocks, diversify them and keep them for a long term.