Investing versus trading

Invest. Don't trade

What's the difference between investing and trading?

With good and wise intentions many people want to start investing in stock and shares. In fact I would encourage people to do so. 

Unfortunately what most people do one of three incorrect things:

1) investment decisions are based on tips from friends
2) investment decisions are based on a general opinion as to whether a Company is good or bad
3) investment decisions are based on looking at a chart and trying to predict the next movement in share price

All 3 investment decision strategies will eventually lead to losses in the long run. This is speculation and should be avoided. You do not make wise investment decisions based on speculation. That is for professional traders and NOT FOR YOU! 

You should make your investment decisions on sound principles of valuing a business as I've explained in Value Investing or my Investing Principles series.

To make any investment decision on the above three bases is to try to be a trader and you will surely lose money. Remove your ego when investing. You are not on Wall Street. Your investment decisions should be made with a long term view in mind. Think in years and not days.

A simple method to check whether you're investing rather than trading is if you can explain your investment decision in terms of returns, valuation and business analysis rather than in terms of predictions or past and future price movements.

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