Now, you may be thinking, “Which one should I start with or focus on?” Well, I think it boils down to personal preference. Look at the table below and see which method suits your personality and lifestyle better.
- Are you someone who prefers to analyze company financial statements? Then go for investing. Do you prefer to look for patterns in price charts? Then go for trading.
- Are you someone who has the patience to hold a stock for the long term, say up to 10 years? If yes, investing is the way. Or are you someone who enjoys fast-paced action, taking profit within days or even minutes? Then trading is your game.
- Do you have a day job and only want to spend 2 to 3 hours a week to make that extra income? Then go investing. But if you’re willing to put in more time and effort every day to look at the charts, then trading may be better.
As for me, I started more than 20 years ago on stock investing. Now I’ve got both an investment portfolio and a trading portfolio. I have them for different reasons and manage them very differently. My trading portfolio is where I get in and out of the market really fast, trading both the stock market and Forex market. I trade for quick cashflow — once I put money in, I don’t top up any more money, I only take money out when I’ve made winnings. Once I generate cash flow, I put this money into my investment portfolio where I buy and hold great businesses that will compound and increase in value.
So you see, investing and trading stock are different games to help you build your wealth — it doesn’t have to be an “either or”! But if you’re just starting out, it’s good to start with one first and become really good at it. Then if you feel you have the appetite for more, go for the other one.
No matter which one you start with, the key is to stick to the rules of your game. What you NEVER want to do is to mix your rules together. Some people say, “Okay, I’m going into Facebook for a short-term trade.” But once they get in and it drops, they say, “I’m not going to cut my loss, it’s now becoming an investment.” Never let a trade become an investment, never let an investment become a trade.
The Relationship Analogy
Here’s a cheeky analogy to help you remember the difference. Long-term investing is like a stable marriage. When you get married, you don’t need to use any protection, right? 😉
When you get married, you are loyal to the person. So even if that person throws tantrums and goes through mood swings in the short term, you stay with that person because you know the person has character strengths you love. Over time the relationship will flourish. Makes sense?
But in short-term trading stock, it’s like going for an exciting one-night stand. In a fling, you don’t care about the person’s values, you’re just going in (when the price goes up) and getting out (when the price goes down). You’ve got to use protection due to the risks involved, there’s no loyalty and you’re in and out really fast.