As much as I love investing, I believe that most of us invest with a similar goal in mind, i.e. to make money, to get our money to work for us, and to attain financial freedom. However, considering how different investors can be when it comes to styles and personalities, there is really no one rule that applies to all. Perhaps, that also explains why the stock market is so confusing and unpredictable in the first place.
There is no way to know what every single person thinks, but we can make our lives easier by knowing our own investing personalities and what floats our boats. Boiling down to the basics, you need to know whether you are a short-term trader or a long-term investor (though in real life, many of us are a mix of both).
Short-term Trading
You will like short-term trading if:
- You are comfortable with keeping an investment for only a short period of a few weeks, or even days.
- Your goal is to make quick bucks to reach a shorter-term goal, e.g. purchasing a car, funding a vacation, etc.
- You are not a fan of doing extensive fundamental research on the businesses that you have invested in, but you are able/ willing to commit a significant amount of time to trading and checking stocks.
- You are ok with taking risks and dealing with profits and losses due to short-term price fluctuations.
- You can accept high transaction costs as a result of frequent trades, which reduces your income in a bigger proportion as compared to long-term investing.
Misperceptions of Short-term Trading
- Short-term trading does not require patience.
Truth: Even for a short-term trader, not every day is a trading day. We need to wait patiently for the best opportunity to long or short.
- Short-term trading is always about buying low then selling high.
Truth: Short-selling (profit from falling in share prices) is equally if not more important. Most people only know how to long the market, and therefore they lose money or end up doing nothing when the market is bearish.
Currently, there is still upside in the last phase of the bull market for short-term traders, possible to buy high sell higher but shorter term position should follow shorter term market signals.
In my free 4hr investment course, I will share with you high-probability trading techniques for short-term traders to profit from the rising and falling stock market.
- There is no need to read up on anything if I am trading short-term.
Truth: Short-term trading, being more speculative and volatile in nature, requires one to react quickly to market news and sentiments. In order to profit in both bearish and bullish markets, one would still need to read up to understand the impact of market-changing factors such as the US Federal Reserve interest rate hike, Donald Trump’s national policies, oil & gas crises, and global quantitative easing (QE), etc. It is important to know the impact of global economy on stock market.
Long Term Investing
On the other hand, you may like long-term investing if
- You are okay with holding an investment for a long period of time, and buy or sell only once every few years.
- You have a longer-term goal in mind, e.g. building resources for your retirement, and you are expecting your investment to increase in value over the long run, and/or also provide income in the form of dividends.
- You prefer fundamental analysis to technical analysis.
- You like value investing.
Misperceptions of Long-term Investing
- You do not have to hold a lot of cash if you are buying at a discount.
Truth: Even if you have met the “golden opportunity” where blue chips have more than a 50 percent discount in stock prices, you as an investor have to accumulate bullets (cash) to be able to make substantial profits when you buy low and sell high.
- If you are investing long-term, you can just sit on your stocks and not care about them for a long time.
Truth: While it may be true that you do not have to react to stock market changes immediately like short-term traders do, you still need to review and reevaluate your stock portfolio from time to time. Even in long-term investing, you would need to do spring cleaning regularly, classifying your stocks into different categories and treat them differently, for e.g. fundamentally-strong stocks for long-term holding, cyclical stocks to sell at a high, and junk stocks to sell at the right time, etc.
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Time flies, and before we realise it, half of 2017 has already passed. On a global level, stock markets have performed superbly for 1H2017, rewarding investors with attractive returns that have not been seen for quite a few years. How sustainable is the stock market rally then? Will there be a market correction? Take actions now to position yourself for investment.
