1. Timeframe : Investors such as Warren Buffett are buying shares in companies seeking income or equity growth. Profitable or growing companies attract investors. Investors seek income from financially stable or growing companies at low to moderate risk as they have done their financial review. Traders buy and sell positions in minutes, hours, days, weeks or months based on technical indicators. Traders buy positions long or short to grow their P&L quicker. Speculators hold their positions for weeks or months speculating that the stock price will rise to the stars. We have seen that investment strategy approach in the portfolio Risky Business of Bart Goemaere, remember? Here’s the link to this blogpost.

    The Favorite Stocks of Bart Goemaere

  2. Risk Management : Value investing is an income building approach that forms a solid conservative investing base. Low or moderate risk positions can produce steady returns. Trading on the other hand is buying shares that are rising in price or are expected to rise on news. Share price movement, not revenue or bottom line profit, attract traders. Traders accept more risk and price volatility as the trade-off is to seek considerably higher returns, compared to income investing. It can produce dramatically increased returns but at higher risk if you don’t know what you are doing. To do it well, trading takes solid technical trading skills than investing does. Trading strategies range from moderate to high risk dependent on how you apply it. Speculating is high risky business as you rely on knowledge, a new trend or hot sector,…there is no guarantee at all that your investment will rise in value.

  3. Level of knowledge : Fundamental investors say that managing positions in this basic conservative approach of value investing requires minimal time commitments. I would argue with that as you need to follow up financial results of your companies and execute portfolio management. This requires a knowledge to review balance sheets and future cashflows. Traders require a different set of skills. They require knowledge about technical patterns and the trade setup strategies that they apply. Speculation on the other hand is the shoot for the moon, home run seeking, swing for the fences, let’s say high risk – high reward approach. Well done speculation requires much knowledge, close attention and lots of time. So you see that different skills are required for each investing strategy.

Beside the basic differences already discussed above, there are many other approaches to the stock market. You know that we are also learning options investing. Within each approach there are many strategic variations. So be aware that with each investing strategy, there is a risk of money loss. Even keeping cash in your home has a risk of being stolen or burned in a fire, right?

Final conclusion

What is the final recommendation I can give you ? If you believe in your investment strategy and it results in higher returns than the stock market average of 7-8%, you can stick to it and continue what you are doing. But my recommendation is to learn the skillsets of an investor and a trader. Why ?
I personally believe you need to learn to grow your money in a climbing and declining market. Fundamental investors sweat when stock market crashes occur. Then they buy more shares to average down their positions as they believe the stock markets will climb again after a while. But you can also earn money during those stock crash periods when you know trading skills. And you don’t need to invest always long positions when you know trading skills. More investing skills means more ways to adapt to the market and earn money as a result.
While learning options investing, I think I am growing towards a better investor with skills from a dividend income investor complemented with skills from a trader. It will allow me to grow my money and net worth quicker and faster if I I execute a good risk reward practice. We can only encourage you to do the same investment in your financial education and inspire you with our blog posts.
As always we end with a quote. It also applies to learning how to invest your money.
 
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