There are two ways of dealing with equities. One is trading – where investors buy stocks in the low market and sell in the high market. As markets fluctuate every moment, there are even options to do trading on a daily basis. The other way is following the basics of equity investments and investing for the long term.
Due to their enthusiasm, new investors want to get quick returns through equities. However, for making money through equity trading, an investor needs to do extensive study about equity markets, and need to devote much time to track markets, economy – both domestic and global economies, events that may influence sentiments of consumers and individual stocks.
While studying and devoting time helps both traders and investors, it’s a must for traders. This is because investors may stay invested to wade through choppy markets, but to buy stocks in the low market and sell them in the high market, there is no other option to gather knowledge and devote time to execute with perfection.
Higher the market volatility, more will be the options to buy stocks at low and sell stocks at high. Moreover, it’s easier to make money at a bull market.
However, it’s a difficult thing to make money through trading in a bear market. This is because the opportunity to sell at a high market may be rare at a falling market.
So, in bear markets, lack of knowledge, experience, time to track market movements may wrack new investors without having good financial strength to stay invested till the stock prices recover or to withstand losses, if any.
Enthused by the gains from trading in a bull market, if an investor starts borrowing for short-term investments, a prolonged low market may leave the investor bankrupt.
The quest for making quick money may also spell trouble for inexperienced investors. This is because, lured by the gains made by the existing investors, such investors end up investing in high markets due to their inexperience.
Again, the quest for making quick money makes them impatient and without waiting for markets to recover, they end up selling stocks at low markets, thus suffering steep losses.
Waiting to time the market to invest in a low market may often prove futile, as the exact bottom of a market cycle can’t be predicted with perfection.
According to renowned investor Peter Lynch – “Far More Money Has Been Lost By Investors Preparing For Corrections, Or Trying To Anticipate Corrections, Than Has Been Lost In Corrections Themselves.”
So, as the investors gather experience and become mature, they leave the quest for making quick money through trading and don’t wait for investing at low markets, but invest and stay invested through the periods of high returns, low returns, no returns and negative returns to make superior long-term returns.
Warren Buffett is known for buying stocks with the intention of holding them almost indefinitely. He once said, “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”