Ask Wealthy Joe: How Investing is Different From Trading!

Q: I read your post this morning that explained why everyone needs to own stocks.  It made absolute sense! 

But I’m apprehensive.  I have a relative and a coworker who are both very into stock trading, and their lives are both a big series of ups and downs – both financially and mentally! 

Both of them have lost large amounts of money, and I’ve seen each of them get very bent out of shape to the point that they curse and pound their fists on tables. 

They also obsess about their stocks constantly.  My relative almost missed seeing his son being born because he was watching the market!

They’ve both made big profits at times.  But I can’t imagine living the kind of life they do. 

Does investing in the stock market mean I have to turn my world upside down?

A: OK.  I want to take this moment to distinguish between a trader versus an investor.

A trader is someone who, like your relative and your coworker, buys and sells stocks within a short period of time.

Ideally, a trader would like to buy the stock at one price and then sell for a higher price in the future.

The time frame for a trade can be holding for literal seconds to quite possibly years.  On average the time frame is usually less than a year.

Most of the time, traders buy because they believe (or have been told) that there will be a catalyst in the near future that will cause the stock price to go higher.  A catalyst is a news event that will have a material effect on the financials of the company.

If you are a shareholder, you are obviously waiting for good news.  Once the news is out, a trader sells his or her position and moves on to the next trade.

Sometimes the news ends up not being good.  That catalyst does not come to pass.  So the trader loses money, sells his or her shares at a loss, usually utters a few choice words, and starts the whole process over again with a new stock.

An investor – which is what we are here – is completely different.

Think of the very nature of the word “invest”.

An investor purchases shares in a company with the expectation to hold those shares for at least two to three years.  (This is by no means the official definition, by the way – it is mine.)

Investors typically buy and hold for years, upon years, upon years.

Many investors own companies for multiple decades.  Why?  Because they are fabulous businesses.

These investors then pass those shares off to their beneficiaries, if the money is not needed during their own lifetime.  Conscientious long-term investors often end up very wealthy in their later years, have more than enough to live off of, and are able to leave a considerable legacy for their children and grandchildren.

Investors don’t get bogged down by the short-term outlook.  We’re focused on the future.

Here at Wealthy Joe, my mission is to help you become an investor.

Which one would you rather be?

My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.

Click the image of the book at left to be taken to its Amazon page.  (Disclosure: As a participant in the Amazon Services LLC Associates Program, I earn a small commission on each sale generated through these links.)

Leave a Reply