Smart investors leverage both trading and investing by holding separate portfolios – one to generate profit and another to create wealth.
The terms investing and trading are often used interchangeably with respect to equity markets. However, they are two very different approaches – one generates profits, the other creates wealth. Here’s how:
Let’s understand each approach with two different stocks in the same price band.
Scenario 1: Stock X with a current market price (CMP) of Rs 25 is considered fundamentally sound, poised for long-term growth.
Investor: Buys 1000 units of X @ Rs 25 today – sells the stock at Rs 36 each after 3 years.
Scenario 2: Stock Y with CMP of Rs 25 operates in a cyclical industry that is riding the tide at the moment.
Trader:Buys 1000 units of Y @ Rs 25 – sells it within a week for Rs 26. Buys same number of units again after a …