Trading vs. Investing: Why Trading CANNOT Beat THIS Strategy!

Trading vs. Investing: Why Trading CANNOT Beat THIS Strategy!

Trading does not work! And that’s simply because traders do not benefit from possibly the most powerful force in the investing universe. And I have run the numbers and in this video I will show you with the help of a few simple examples why trading is a vastly inferior investing strategy – especially for the average investor. I will show you that even if a trader generates exactly the same annual return as a long-term investor, the trader will end up with a much worse financial outcome.

Trading or Investing: Which strategy is better? We will look at three different investing strategies: Short-term trading, long-term trading, and long-term investing (aka buying stocks for the long term) and compare their long-term investing results. But before we do that, we will clarify what the difference between trading and investing (buying stocks for the long term) is. Generally speaking, Investing and trading are two very different methods of attempting to profit in the financial markets. When you are trading, you are buying and selling assets based on expected short- and near-term price movements. So traders attempt to take advantage of both rising and falling markets over a shorter time frame, sometimes a few minutes, sometimes days, months, or quarters. And thus traders take smaller, but more frequent profits. Broadly speaking, traders are also often less concerned about the actual fundamentals of the underlying asset and they use technical analysis tools, such as moving averages to find high-probability trading setups.

By contrast, when you are investing, you are more concerned about the fundamentals of the asset. If you invest in stocks, for instance, you are buying an actual stake in a business and you make that investment based on the expected long-term cash returns of the business AND you possibly think there is a high probability that the intrinsic value will go up. So naturally, investors, in contrast to traders, take action less frequently as they have a longer time horizon and seek larger returns over an extended multi-year period. That’s especially the case if they are following a quality-focused buy and hold approach and not a special situations strategy which may be shorter-term in nature.

Why trading is so difficult and why investing is better than trading!

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DISCLAIMER:
The content provided on this channel should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. The stocks and funds discussed on this channel are examples only and may not be appropriate for your individual circumstances.

Before making any financial or investment decisions, I recommend you consult a financial planner or advisor to take into account your personal investment objectives, financial situation, and individual needs.

In no event shall René Sellmann be liable to any viewer for any damages of any kind arising out of the use of any content published on this channel, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages.

I hope you enjoyed the content!

[tricepsbrachii]

The exemple is stupid... of course it is better to just hold if you know you will get exactly 10% every year. Traders try to use volatility.

[sushiwaumai]

Great video! But I feel like this depends on how skilled the trader is. I think there are a few traders out there that outperform the market average by a significant amount that they end up making more than using the long-term investing strategy.

[pedroewert]

traders may invest with profits aswell and do wealth building. the difference would be the goals income generating (trading) vs wealth buildiung (investing) unless you have so much money that investing aswell generates income. Of course talking about professional traders here that decide they want to live that way and therefore have to win.
traders do what they do because they have to - relative big position size, all within risk-managment of course, leveraged with a stoploss -because sitting 50 years on a stock in the hope that it moves may work for charlie munger (who has another few billions to feed him) but not if you want to eat at the end of the month.

The tax consideration is a valid point for europeans - in the US thats not so big of a concern and they have better broker deals - flat fee per month and then trade as much as you want.

[lostmarxbro]

Unfortunately this doesn’t factor in market collapses or even normal dips. My father in law ‘s life savings are down 48% upon retirement. I’m not sure why anyone would knowingly take loses that huge versus paying some taxes. I’m a long term holder but don’t believe that means forever

[cricbuzz]

Great visuals and explanation. I also had some a similar exercise over a google sheet and had come to the same conclusion while I was reading intelligent investor and Phil Fisher 🙂

[ankitagarwal]

Great video rene 👍. As more and more people are focusing on short term it feels good to see these type of videos and earn money sitting on our a** 😁.

[eventhatsme]

I think this tip is not correct for Norway if you have a stock or investing account, where you don't pay tax until you withdraw a profit or close the account. You will still have the cost of switching, but as long as the switch is reasonable you better do that than try to hold the stock through a tough period.

[loverajsingh]

Why would be anyone be trading to make 10% a year. If you have an edge in short term trading the whole point of taking many positions per month/day/year is to compound it over and over. Investing works great with 9 Figure+ portfolio.
In-fact, Buffet also says he wouldn't use the same investing method that he currently uses if he was managing 5-6 figure portfolio.

[MrGoodsalesman]

ya I trade and my returns are a lot more than buying and holding. Trading does not work if you have no skills, so just buy and hold

[Ivan]

Haha okayyy but tell me one company whose stock can grow like that for 40 years...