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Your New Reality: Stock Investments and Stock Trading are Two Completely Different Worlds

Our financial world is evolving

By KenPublished 2 years ago 5 min read
Photo by Jason Briscoe on Unsplash

Have you ever wondered: What's the big secret to investing in the stock market? How do some people earn tons of money in the stock market, while the average Joe is struggling just to save some cash for a rainy day?

The answer to both questions is clear to see: It doesn't matter who you know in the stock market, it matters what you know about stocks and how to educate yourself. In other words, it takes work--lots and lots of work!

You see, there isn't a get-rich-quick scheme that is guaranteed to make you rich (unless it involves substantial jail time for fraud) when investing in the stock market. Sooner or later, all the "smart Alecs" get caught.

Having said that, let me help identify for you the difference between buying a stock and holding onto it with the expectation it will become more valuable over time (investing), and buying that same stock, but only hold it for a few hours, until its value has increased enough to sell it for a profit (trading stocks), which is known as gambling.

Trading a stock, a.k.a. Gambling:

Trading stock and horse racing are two birds of a feather.

In horse races, you bet on the horse you think is the fastest to win the race. If the horse wins the race, you win. But, if the horse comes in second (or anywhere else except first place), you lose.

Trading stock is just like that. You do minimal research to see if the Company's stock is worth buying. If it isn't you buy it anyway because your friend told you it was a sure-fire winner whose price is bound to go up... Except after you buy it, the stock price goes down. Your gamble didn't pay off, so now you have to hold the stock longer than you planned until the stock price goes up high enough for you to sell it for a profit. Otherwise, you will lose money when you sell.

The only difference between trading stock and horse racing is this: If your horse loses the race, your winning ticket is worthless, you lose your money. If you buy a stock and the price goes down, you can still hold onto it and hope it goes back up. It still has value.

Investing in a stock

Investing is a different breed of animal (staying with the horse race analogy) in that you get to examine the stock before you buy it and can make an informed decision about the company's worth.

In horse racing, you can visit the paddock and look at the horse, make sure it has four legs and can breathe. But, you know very little about the condition of the animal, and, if you're new to horse racing, the trainers are very tight-lipped when it comes to this information.

But investing in stock is completely different because you have ample time to review all the pertinent information about the company itself. They are, to some extent, an open book, so to speak. You get to see their profit statement, if they have any debts to pay, how many employees they have, what the products are that they offer, plus a ton of other "stuff" you may or may not know about yet.

Additionally, let's say you don't like to do all kinds of research. You can hire someone to look after your money, someone who has all the requisite education and training to help you make an informed decision. That's true power!

Photo by Sophie Backes on Unsplash

Which is the better of the two?

That depends on what your goals are and how much your timeline is while accumulating money.

If your goal is to save for your retirement years, investing in stocks is a nice alternative for you because the more you save, the more you earn, assuming proper due diligence and counseling from a qualified professional have been completed.

Your timeline also comes into play. People in their early 30s will have a longer time to invest and that could offset any negative short-term fluctuations in the markets or the economy.

Let's say though, you've got your retirement goals and investments in order and you still have some "play money" to fiddle with, without hurting the family or your own financial well-being.

Some people love to take a couple of hundred dollars and throw it into some speculative stock in hopes its price will somehow skyrocket and make them rich beyond their imagination. Others simply want to make a few hundred dollars extra so they can take their significant other to dinner, or on a weekend trip.

With the recent invention of Cryptocurrencies, that actually may be possible. But, that will still take huge amounts of research so you can make an informed decision. Plus, due to its relative newness on the investment scene, there aren't as many qualified professional advisors who would be able to counsel you.

Whether you're trading or investing, I hope you find as much information as you need to make an informed decision. If you're new to stocks, investing, and/or trading, a good place to start your education is Uncle Sam knows a thing or two about investing.

In a future article, I will explain what I look for when I start valuing a stock.

Good Luck!

Thanks for reading this!


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