Trading Vs Investing in Stock Market Explained by @pranjal kamra - YouTube

Now Pranjal, I will talk about a very important question

People say that trading and investing is very different

the psychology is different, your risks in both the cases should be different

But a lot of people question that they started investing way before in the past

market suddenly crashed

When the market went down, if I had sold out my shares

and booked my profit then I would have benefitted from it

What is your comment on this situation?

as when we talk about any investors who had invested in for the long term had always gained more returns

but when the retail investors get stuck between trading and investing then

they get confused and end up taking a wrong decision at the wrong time

Yes, this is a very good question

Many of the clients say that they bought a share at Rs.100 and it went up till Rs.105 but now is at Rs.95

better than this, we would have sold it at Rs.105

So here, we will have to understand really well

that this will always happen in the market

the market doesn't know that you have bought these shares thus it shouldn't move down

Whenever you feel that this share is cheap at Rs. 80 and you buy it

so you just know that this share is cheap and you are getting good value with it

that doesn't mean it can't go to RS. 70 or Rs. 75

Your decision to invest in the stock would be proven right when

your stock doesn't give you a return of 15% CAGR in 3 or 5 years

If in one month that stock is going to Rs. 60, Rs 50 or Rs.70 isn't dependent on fundamentals at all

It is dependent on the short term news, demand and supply and on the sentiments

Assume if you had bought any share in January or February, almost any share at all

Except for one or two, 95% of your stocks would be negative if you had invested in January or February high

It doesn't mean that 95% of your investment decisions were wrong

cause you didn't take those decisions for 3 or 4 years

so the decisions that you have taken for the long term, a judgment on that should also be made in the long term

If I am buying XYZ share at Rs. 100 hoping that in 5 years it will touch Rs 1000

then where is the stock standing after 1 year or after 4 months, how would it bother me

as long as the fundamentals are right

Other than this, If you see conceptually then if you start any business of your own

say a boutique or grocery show

then can you judge your business's performance in one month, 2 months or in 3 months

Assume if you had opened a business before a month and didn't have many sales, then will you close it down

We even give a time period of 6 months or 1 year to our business

First to understand from where to bring in the sales and the growth

Secondly, everything takes time

When you are buying stocks of a company, it means you are becoming a partner in that firm

In a business wherein you are a partner, you want that business to do a miracle in 1 year, 1 month or 4 months

when you have not even actively participated in the business

In a business wherein you are actively working for 8 hours, 10 hours or 12 hours

even such a business cant give you a return in a month or two

even such a company takes years

so if you are buying stocks for long term

According to me, one should only buy stocks for long term

then give it a time frame of 2,3 years so that the business can recover from its short term shocks

and give you a return on its fundamental basis

so these kinds of ups and downs in the short term would be always there

but because of this if you start doubting that better than this I would not have bought it

which means you are not ready for the share market

then FD is the right choice for you

cause why does the share market gives you such high returns? Cause of its volatility

there is no guarantee in the share market

and because there is no guarantee, the risk is high but the reward is high as well

so this risk factor makes share market give you possibilities of a higher return

thus there is no point of being afraid of the volatility

There is nothing to give you the stability of FD here with the returns of stock

If you want the returns of stocks then you will have to take the risk accompanying the returns

Again, the circle of competence is very important.

So who are these investors who get anxious in a month or two months

these are the people who had blindly followed someone and bought shares

but if you had studied your stocks really well

I always ask one question for my stocks even it goes down by 20%, 30% or 40%

Is this business going to shut down in a year or 6 months?

If this answer is no, this business won't shut down

Is this business going to go down materially forever

If the sales are going down for a year or 6 months, it is alright

but if a share is going down by 30% or 40% then I will ask myself

if this business's outlook has been spoiled for the next 5 years

Is this business about to shut down? If the answer to these two questions are no

then there is no reason to regret your decision cause of price fluctuation

Cause for the next 50, 60 years if you will enter the stock market

then how much ever big of an expert you become

90% of the times it will happen that when a share falls and you bought it then it might fall further

it will happen for sure. It would happen very rarely that you bought a share at Rs. 100

then it started increasing right from that Rs.100, that's pure luck!

Many times it will go to Rs 70, Rs. 80 or Rs.90 then it will start growing cause you realized that share's value today

You valued that share, you felt Rs. 100 is the right price and you bought it

As and when you realize it, it's not possible for others or the market to realize it at that particular time and price

It will happen that many people will value it at Rs. 80 or Rs. 90 and some people would even notice it till later

cause maybe they feel that the share is valued right at Rs.120 as they didn't notice it

there are 5000 companies, they happen to miss the fall in price

so often it would happen that the price at which you bought, might go further down even at a good time

but you have to judge it in the long term