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Strategies & Market Trends : Value Investing
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To: Honest Abe who wrote (3403)3/3/1998 7:02:00 AM
From: Richard Query  Read Replies (2) of 78628
 
Investing vs. Trading

<So, if you give the 'trader' and the 'buy and holder' both 15% pre-tax returns, the buy and holder is ahead of the trader by 5.68% assuming a short two year time frame. Extend the time frame to 5 or 10 years and the results are geometrically higher.>

"if" is the key word, the goal of a trader is to catch many small upward moves (or short downward moves) during the year. What most investors seem to do is look at trading the same way as investing, while they are 2 total different animals. As an investor one might have 10 different stocks each being 10% of portfolio, so if the average gain is 15% they make 15% for the year. while a trader might own each of those same 10 stocks 3-4 times during the year making say an average of 3% each time. The real advantage is that as a trader, is that on each of those times a trader will have 1/3 to 1/2 of his/her equity in the stock. There for a Trader might well make 40% (40 x 3% x 1/3) playing the same stocks while only averaging 12.5% on each stock.

Trading for the most part is based on technicals and news vs. Investing which is based on fundamentals. Both can help you reap higher returns in the other. Good fundamentals adds an added margin of safety to trading, and the technicals better entry prices for investing. There are many ways to make money in the market. Each of us has to find what we are comfortable with and what works for us personally.

Darth
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