It is important to know what you are up to in the stock markets. You know what’s the biggest problem in the stock market……..? Not knowing if you should trade or invest. Let’s make it simple…. Are you a speculator with a short term view on the stock or do you have a long term view?
As an illustrative example: The current price of ITC is Rs.255; one day target is Rs.258; three day target is Rs.260; one week target is Rs.262; one month target is Rs.270; three month target is Rs.275; six month target is Rs.290 and one year target is Rs.300; five year target is Rs.500. What do you want to do?
The decision you take here would decide your attitude with the stock; either you are going to marry (long term happiness/benefit) or would like to have an affair (short term happiness, perhaps). The prospect of an affair is exciting no doubt, that’s why perhaps there are more speculators in the market than investors!!
I always have wondered those who have been trading or speculating in stocks like Infosys, MRF Ltd. Wipro, Reliance Inds, Maruti, Asian Paints and the likes in the last 20 years have they made as much money as investors who had purchased then and left it for it to grow. I am sure an investor would have made more money than a trader. The problem is most of them fail to realize whom to marry and with whom to have an affair with!! They do ulta and cry foul.
There is no problem with trading, it has immense potential if one knows how to manage a trading portfolio, but I suggest that parallelly one should also build an investment portfolio. I have a friend who works for a media company who has been speculating in Maruti Suzuki stock since the price of the stock was in the range of Rs.3000. He has bought and sold this stock umpteen number of times; for profits of Rs.5 to Rs.25 per share he has been buying and selling; of course, he has made losses also en-route on a few occasions, he has never owned that stock but loves the price spread it provides to speculate. In the last four years (from 2013 onward) the stock has gone up by almost 300% and I am sure his balance sheet after accounting for profits and losses would not be as much. That’s what I said about not knowing whom to marry and with whom to have an affair with!!
Trading is full time job that requires strategies and continuous watching technical analysis charts because the price movements are fast and swift. Decisions have to be taken on booking profits and also cutting the losses; positions have to be taken in more than one stock to hedge the possibilities. It all requires time, effort and also concentration besides pumping money for margins.
Investing may not require so much attention and follow-up; if you are following some companies whose products/services are consumed or has a good consumption possibilities then you should buy them in small quantities. Choose at least 10 important sectors from the stock market and buy at least one stock per sector and keep adding to the quantity as when the stock corrects/falls. For example, if you think L&T is a good stock under the infra/engg space then buy it at every possible opportunity.
Learn on the way…….