TRADING Vs INVESTING - HOW TO GROW WEALTH?

Whenever we hear about Stock Market, We find Two Types of People  saying ..

Every Day we can gain Rs. 10,000 

on one side

and

We can become Crorepati in Long - Term

In Stock - Market we can do Trading or Long - Term Investing. Which is Better? Where can we gain More Money with Lowest Risk? 

Let's Begin..

In Trading, Whenever we buy any asset, we do so in order to sell. For Example, Stocks, Futures, Options, Bitcoin or anything, you buy and sell and make the profits from the difference. There are some Traders who within only few minutes buys and sells stocks and makes profit through small fluctuations in the market. We will see how it happens further. 

On the other side, Long - Term Investors doesn't buy any contracts like Futures, Options, Bitcoin, etc but hold their Investments for long time, say, 10 or 15 years or for a Life - Time. Because they think that , whenever Company does something good, the value of stocks always increases and in the long - term the stock's price always goes up. In short - term, the price or value of stocks can be little upwards or downwards due to temporary emotions. But in Long - Term its stock price actually follows its value. So, due to actual growth, Long - Term Investors makes profit. You might think, if we can make good profits through Trading, then why to wait for gains through Long - Term. Before understanding this, Let's understand the Strategy and Difference between the two with Examples. How does Two Types of People makes money and how money comes. 

Suppose you bet with your friend by Coin - Toss .

 If head comes you will win and he will give Rs. 10,000 and if Tail Comes you loose and you will have to give Rs. 10,000 to him. As and when you toss the coin, you cannot back up from the game. Either you will gain Rs. 10,000 or you will loose Rs. 10,000. If you play game once, hope so you will be lucky and win. But, if you will play this game with your friend much more times, can any one tell that some one will become Crorepati. If you play this game even 10 times, both of you will have nothing in your pockets. Because it has 50-50 per cent chances to win , either you or your friend will win. So, we call this as Zero - Sum Game. Because , you are not adding value to it. In long term nobody is getting benefitted, nor you nor your friend nor Government nor Society. But you are wasting your time by playing this game. But, even some are playing this game. Now, after some days, a big problem arises in this game. Any one who looses the game, he does not give the money but absconds immediately, as who likes to give money that is lost. And then in this game, new person enters and says to keep the money that is invested in the game with him for safety and will have to pay 1% fee for his service. This person we call as "BROKER". Now, thereafter, fourth person makes entry. He is that person in whose house you are playing the game. He says as you are playing the game in my house, those who will win will have to contribute 15% of the win money. Loosing Person doesn't need to pay, because he is lost. And you feel logically right and fair enough. This person we call as "GOVERNMENT". After few months, we see that we are not becoming Rich but this Broker is becoming Richer and Richer. And so, Broker always motivates you and creates greed into your mind to fulfill your Dreams by comparing others. Infact, after some time Broker gains hefty sum of money and he then smartly invests in order to grow his business, to do marketing, and brings newer people. After some time, again you notice, even after playing among us, our money vanishes. You think, how it happened? Both of you are not understanding. And, you add fifth person, who is your Older Friend "Rocky". He makes you realize how it happened and says It happened due to Paying this small 1% fees to the Broker. In Finance World, we call it as "FRICTION COST"and in Layman's Language it is called "TRANSACTION COST". 

In second example, again there are two friends. One does Business and Second has Huge Wealth.

The one who has huge wealth gives some wealth to his Businessman Friend in order to invest in his business. The person who has huge wealth, we call him as "INVESTOR" and the person who owns Business is called "INVESTOR AND MANAGER". The businessman works very hard for his business and gives his Wealthy Friend his Profits regularly by directly transferring into his bank account. This is called "DIVIDENDS" and sends proper report by mail detailing how much profits businessman made  and how he will grow his business in future and many more important things. This is called "ANNUAL REPORT". Now, a big problem arises that this Investor is not able to meet his Friend who is Businessman. Whenever, he invests his money, he uses the Broker's Service and transfers the money in his box. Due to this, other people are getting confused about the game. How people are making money from this? Some are saying, we can make Huge money out of it while others say, we can loose all the money. From these two Examples, we have got idea that through Trading and Investing, how money comes to People. 

Now, Let's see which Option is Better and in which Tool we can make more money? How much Risk is involved in these Two? Let's understand with one Example....

Suppose, while coming to home after office you are talking with your friend on call and your friend gives a stocking tip that "Buy XYZ Co.. and gives explanation with logic" and you get convinced with him and get very excited. After going home, you immediately checks your Savings Bank Account and sees that you have only Rs. 2 Lakhs and that too as an Emergency Fund. All money you have kept locked in the form of F.D. and PPF. Your wife will get angry on you if you touch that money. So, you checks all the house for money and your eyes fall on your wife's jewellery, but after few days you and your wife are attending a party, so your wife will be in need. You decide to withdraw this Rs. 2 Lakhs  and checks the price of stocks and sees that the stock's price is Rs. 20,000 and you calculate and find that if you buy the shares you can buy only 10 in quantity. You will not get benefitted only with 10 shares and this is a guaranteed opportunity which doesn't come again and again. He remembers even 2 years before, this friend has given him such a stock tip and immediately he remembers other friend's words that he has made use of  "MARGIN FACILITY".  You  decide to take Margin. You call your Broker and he gives you 50% Margin. Due to this, your Profit will get doubled. And thinking of this, you couldn't control yourself. You thinks when will the morning arise and when will the stock - market open and will trade. As the market gets opened, you buy the stocks. You patiently wait for the stock - market to rise. Recently, your stock is surrounding around the buy price of your stock, but suddenly notices that instead of gowing up, it goes down and you are loosing money and infact whole market is collapsing. You don't know what's goin on? You immediately call your friend, his call comes busy. Then you Google it and within few minutes you understand the reason of the collapse of the market. You sees that US President has tweeted " I WILL MAKE SURE CHINA PAYS THE PRICE". Because of this, world's market has reacted. Finally, Market closes by 3% down. You have not sold your stocks but automatically got sold because you have taken Margin and only in one day you have made Loss of Rs. 12,000. China has not yet paid price, but you had paid. Over here, you can not even blame your Friend, so you blame the Market that the Stock Market is useless, not worth. There is always loss in it. And promises never to enter  the Stock - Market. Now Guess next day what happens to the stock. It goes 5% up and over here Rs. 12,000 has been debited from your Bank Account. And then, You meet your Old Friend "Rocky" and he tells one interesting thing that " When we closely understand the Trading, we come to realize that we have to ride two times and not once. Firstly, WHAT - Which Stock will go up and Secondly, WHEN - the timing when the stock will go up". This prediction is to be done and is very difficult, which every time people misses and the risk of trading arises. In Trading, when only one thing is right, then also you looses your money. The most dangerous thing in Trading is that if you are wrong, then your money is gone permanently. In Trading, there is no Diversification like 10-15 stocks nor hope of recovery in future. And if you faces Capital Loss then Game over.. 

Finally, I want to share one important message that whenever you make profits through Trading in Stock - Market, say Rs. 1 Lakh Profit, another person has made a Loss. Because, in the world, in Short -  Term, money is limited. If you count how much money is available in world, you can count. It's countable. Whenever you make profits, money doesn't comes automatically. It's transferred from one person's account to another after paying Transaction Cost. According to me, there cannot be Part-Time Traders. You, in your Office, by taking Trading Tips from anyone, cannot think that you can become rich or your money problems will be solved. Many people loose in such a Trading game because with  Part - Time Trading and without Experience and without Knowledge and limited Capital they compete with those people who are Full - Time and Experienced with Huge Capital and are continuously learning. That's why, There is Rule in World of Trading, 90/90/90 Trading Rule. Which means, 90% new traders loose 90% their money in the starting of 90 days. So, we are talking about Long - Term Investing, due to which we all can become rich. Due to Investing, Investor also becomes rich, manager, Customer's Standard of Living also improves, new jobs gets created, Country's GDP grows and Economy grows. In long term, money and authorities both are always unlimited. Or we were in Jungle and hunting animals  instead of ordering food from Swiggy. There are so many Company's stocks which's prices have gone up since 10-15 years. Twenty years before Sensex was on 4000 points approx and now it is more than 40,000 points, means 10 times up. Whoever have invested in long term, have earned profits and will earn profit because they have played a POSITIVE SUM GAME in life and they have also used Compounding. So, if make losses in Trading, you not only loose the money you traded but you also looses the money that can be earned while compounding - THE OPPORTUNITY COST.. I am not saying you only make losses due to Trading, You can also make money out of it. Some people can even become experts in it by making various Strategies. But, you, yourself, cannot decide where you will be tomorrow morning at 9.00 O'Clock - In front of your Computer Screen or anywhere else where your mind goes, so you should understand, to which freedom you are going. Most people dream of resting the whole day or monthly expenses directly to come to their bank account without doing anything and if side - by - side income also grows. This can easily happen through Long-Term Investing, whether it be through Stocks or any form of Investment like Real - Estate. But, in Real - Estate you have to invest a big amount, which cannot be done by everyone. Every month you need to go and collect rent, but in Stocks you can also invest with small amount with SIP and your Income directly reaches your Bank Account, wherever you be. This is called "REAL FINANCIAL FREEDOM". 

Finally, I would like to say that the People who wants to be quickly rich, cannot become but if you in a right way try to become rich, you will surely become rich and you have understood secret also that through Long - Term Investing we can become rich and can improve Standard of Living. So, Stock - Market is a Coin which has two sides - TRADING AND INVESTING.