Trading vs Investing: which is better and which gives higher returns | Stock Market for Beginners - YouTube

A few days ago I met one of my friends

Who told me that he traded a little bit of money and made it twice as much

I was shocked when I heard this!

I thought to myself, is it this simple to increase your money twice or thrice as much?

So, even I started to trade

And I started my trade with 10,000 Rupees

But my trade of 10,000 Rupees, in ten days reduced to become 5,000 Rupees

I suffered such a big loss only in ten days

What was the reason behind this? Why, during trade, do we lose our money so quickly?

Today, we will discuss the difference between investing and trading

And how there is more of a chance to lose money while trading

And how there are more chances to earn money while investing

I, Japgdeep Singh, welcome you to the Groww channel

Let us discuss, in this video, the difference between investing and trading

And if retail investors like you and me

Should trade or invest

And in which case are there more chances to make money and in which case can you lose money

To start off the video, let us try to understand the difference between investing and trading

I will explain it to you with a very simple example

Suppose I have some money and I decide to buy an apartment

I bought the apartment and in 10-15 days, the value of the apartment doubled, so I sold it

I took my profit and left

So, this is a case of trading

But if I made an investment in an apartment

Thinking that in sometime, a highway is going to be built near it

Or a metro station is going to be built near it

So, when I put in money in the apartment, for a long term,

That is called investing

Keeping in mind how its value can increase, down the line or in a few years

The same thing happens in a share market, take for example that you have put in some money in a share

Thinking that in a few days its price is going to increase

Without thinking what its business is and how the business can expand in the future

Then this is a case of trading

But in this case, if you put in your money in a company's share,

By seeing what the company's financials are, how the company conducts its business

What the company's profits are, how has the company performed in the past few years

What the value of the company is, then you are investing

Because, at the time of investing if we put in money in any share,

The first thing we see is,

What is the value of the company?

How is the company's business?

Keeping all this in mind when we think of putting in money in a company,

Then we react like an investor

Now, friends, you have understood what investing and what trading is

Who an investor and who a trader is

But, just like me, maybe even you don't know that when we put money in the share market,

Do we react like an investor or a trader?

Now, I will tell you some traits with which you can figure out whether you are an investor or a trader.

The first trait with which we can decide whether we are a trader or an investor

Is that whenever you put in money in a share,

Do you put in money based on its price or its value?

When it comes to price, take for example, there is a share that trades on 100 Rupees

It fell to become 60 Rupees

Without thinking and knowing it business, you put in money for that share

Keeping in mind that the share that was worth 100 rupees is now worth 60 rupees

So, I should buy it. In this case, you are trading

But if you put in money in a share by looking at its value,

Then you're reacting like an investor

The second trait that can help us differentiate

Is when you put in money if someone tells you to, then you're reacting like a trader

For example, when I first started putting in money in the share market,

Then one of my friends told me to buy a share from some company

And I, without thinking or knowing anything about the company and having any information, put in money in that company

And in that case, I lost money

And its not just me, in this case, many retail investors like me, lose their money

When they put in their money in a company without any information, based on what someone says

So, if you ever put in money in a company based on what someone says,

Then you react like a trader and not an investor

So, the first thing an investor would do after hearing about this company, is research about it

They would see what kind of work the company does, what product the company makes

What raw materials are used to make the product, how the company's competitive advantage is and what its financials are

After that he will decide whether he wants to put in money or not

The third trait is that, a trader, before putting in money, sees the technical charts

Or believes the news and puts in his money too fast, thinking that very soon its price will go up

But, an investor never looks at technical charts

He tries to evaluate the intrinsic value of a company

What the value of the company is and he tries to gauge the company's value in different ways

And when he understands that the value of the company is good, then he decides to put money in

But a trader, on many occasions, based on technical charts and rumours, decides to put money in the share market

When the market goes up and down a lot, a trader comes into action

He feels that when the market is volatile, he can enter the market and when the price goes slightly higher, he can sell and leave

If, in that situation there is a investor, he firstly selects a good company

He doesn't think about the broader market first

He selects a good company, reads about its business

Then puts money in the company without thinking whether the company is volatile or not

Because the market's volatility makes no difference to him

On the other hand, a trader tries to make the most money when the market is volatile

Maybe in some cases, some traders come out successful

But a lot of trader like you and I, lose their money as well

Based on these traits, you can decide whether you are a trader or an investor. I will tell you again in short,

If you put in money thinking that you want to earn money very fast,

Without having any information about the company and try to take advantage of the market's volatility, then you react like a trader

In the same case, if you are an investor,

First, you research about the company, you maintain discipline through the process,

You maintain patience for a long term after you invest in the company,

And then in the long run, you make good money, then you react like an investor

Based on this information, you can decide whether you are an investor or a trader

And I will tell you, that you're a trader then there a big chance of you losing your money

But if you are an investor and keep all these things mind, choose a good company for the long run,

Then there is a big chance that of you making good money in the end

Now, must be thinking, after listening to all this, that you react like an investor

But I still lose money

So what mistakes am I making, that despite being an investor, I lose all my money

The biggest mistake we make as investors, is that we don't diversify our portfolios

While investing, we choose a good stock and invest a lot of money in it

And many a times, retail investors like you and I, we make a lot of mistakes

Because our research isn't necessarily always right

And what happens in that case is that, all our money is invested in one company

When that company declines, we face a big loss

And because of this, many investors undergo a big loss

So, to avoid this loss and to rectify our mistake,

We should invest our money in different companies

We should diversify our portfolio

The main benefit of diversifying, is that our risk becomes lesser

Our risks diversify

Because of which if one company goes down, then we can get a profit form other companies

And our loss is not as much

So, if you are investor the first thing you should keep in mind is that you have to diversify your portfolio

Second, we should not get very emotionally attached to any company

You should always remember that if you have invested in any company,

Then your hard earned money has been put into that company

If that company does not perform well, or continues to decline

Then you should exit from that company at the right time

Take for example, that you bought a share from a company at 100 Rupees

And an issue of corporate governance comes up in the company, because of which its share price come to 60 Rupees

You realize that something is going wrong in the company and that it's the time to exit from the company

But retail investors like you and I, get very emotionally attached to a company

And we like to believe that the company will bounce back and the price of the share will go back to 100 or 120

The mistake we make is that, in that situation, we invest more money

Because of which, the other stocks we have in our portfolio

In which we should invest money, we remove money from that and invest it in the former company

Even when we know that the company is not going to perform well

And all our money is gone and as an investor, we lose all our money

Making mistakes during research is not made just by retail investors like us

But also by big investors like Rakesh Jhunjhunwala who also invested a lot of money in DHFL

And when the shares came down, he bought more

So, mistakes are made by everyone

But it is important that we rectify our mistakes at the right time

And exit the stock at the time when we know that its not going to perform well in the coming time

So, until now, I have told you what the difference between trading and investing is

How you can decide whether you are a trader or an investor

And how by being an investor, you can make correct strategies to earn the most money

Now, I will tell you what is right for you between trading and investing

I will not say that trading is wrong and you can never earn money by trading

It is possible to earn money by trading. But for retail investors like you an I, it is extremely difficult

Because during trading, the opposite party, is a lot more qualified than us

And when retail investors like you and I, start to trade, the counter parties are very big companies

They put in a lot of strategies behind every trade which we don't know about

So, I will not say that trading is very wrong

But the knowledge, information and the system required for trading, retail investors don't have

So, for retail investors, the safest and best way to earn money is through investing

Because the benefit of investing is that whichever company you're investing in, its for a long time

And if the company performs well in the future, then the share price will go up

With which you can benefit

Apart from this, if you invest for a long time, then are is a big chance that if the company performs well, they will give you a dividend

So, there are a lot of ways through which you can get an income

Because of which the chances of you going through a loss become a lot lesser

This is why I say that trading and investing are both good

But for retail investors like you and I, who are just starting to invest,

Who are thinking to put money in the share market

Investing is very useful and simple for them

And they have lesser chances of losing money and more chances of making money

So, I will end this video with a very interesting fact

You must have heard the names of some very big investors like Warren Buffett, Rakesh Jhunjhunwala

And many others, but you would've heard very less names of successful traders

Because trading is very difficult and complex

And people like you and I making money off trading happens very rarely

And people like us often get greedy that we'd be able to make money off trading

But, we lose money again

And our belief in the share market is lost and we exit it

You must be thinking that should start investing now

That you want to learn how to see a financial statement

So, we had made a video on how you can see a financial statement

There's a link down below to the video where we tell you how you can read the financial statement of any company

We make 3-4 videos every week on financial knowledge on this channel

So that you can become a good and intelligent investor

So, if you haven't yet subscribed to this channel, please subscribe so that you don't miss out on that financial knowledge

So, friends, if you liked this video, press that like button

Comment down below and let us know whether you are a trader or an investor

And if you are an investor, which companies have you invested in

So that our other viewers can also learn from you

Because from your recommendation, a good company has come up, which other people can also invest in.

Happy investing!