Should you trade or own stocks? What is the difference between the two?
With TikTok and all other video platforms, many amateur and novice investors have become overnight investing gurus followed by thousands of people. While some of them explain in a minute or two how they made millions per trade. Others challenge the public: they will go from $300 to $100,000 in one month. This is absolutely crazy and insane. Is this how you make money? Haven’t you worked hard for the money you have, and if you lose money on a single trade trying to become a millionaire, are you okay with that?
First of all, trading involves buying the stocks today and selling them the same day or the next week. You bet on the stock moving on an event – for example, an earnings announcement, a special event, or huge product announcements.
Whereas with stock ownership, you hold the shares for the long term (3 to 5 years at least). And you’re not as concerned about recent stock market events or that one or two earnings didn’t meet expectations.
Trading or owning stocks (example)
To explain better, let me consider Wall Street’s two favorite stocks with enormous volatility.
Apple and Tesla.
Let’s start with Apple.
Well, Apple recently held a product launch event where they showed off the shiny new iPads (Air and Pro) and Apple Watch, but not the iPhones. (12 and PRO phones, 5G)
The end result, the stock fell to $104.
I agree that the entire market is down.
But, in Apple’s case, the market and investors were likely eagerly awaiting the release of the next-generation iPhones. (5G phones).
Even though everyone knows the new iPhones will arrive before the holiday season begins, people are still trading stocks that are meant to be held. You’ll see the iPhone 12 launch event just like you did the iPhone 11, iPhone X (Apple’s first $1,000 phone), or the Matt Black-finished iPhone 7. Ultimately, Apple sells! Believe me, Apple can sell anything, they have the quality, the product, the people and the money to sell! One more thing, the product works! Every time.
Either way, Apple is a stock you own. No trade.
Another quick note regarding options trading and the Robinhood folks. And then you have the put and buy options, seriously do you want to try this shit? How can you sleep with all your money betting on a stupid event? The market may be crazy about you. People with billions are trading on Wall Street and you’re thinking. can you beat them? Good luck then my friend.
Look, it’s true, no one can predict stock market movements. Those who bet that Tesla shares would hit $500 or even $600 after or before Battery Day were all wrong. The purchasing options were crazy. However, the stock rose from $330 to $450 and is now back to $380. People were holding on to sell even higher and losing. It’s options trading, you can’t predict and you lose steam wanting to earn more unless you are a pro at making consistent profits, which again is impossible.
If you believe in Tesla, it’s an incredible stock to own, the battery event was fantastic. As an investor, you must know and watch the event. Don’t trade the stock of the company you believe in. If you invest, you stay invested. You don’t give up on your favorite NBA team just because they lost a game or two.
Instead, I would prefer Warren Buffet’s way of investing. Although I’m not totally in sync with his way of investing. I like that the majority of his investment is in Apple, even though he doesn’t own an iPhone 🙂
I’m more of a fan of tech stocks than passive dividend growth machines. I don’t own Berkshire for the same reason. I don’t believe in the stock, nor its principles. But I like Warren and I follow what he says.
Let’s return to the Apple example.
If you believe in Apple as a company, its revenue, its products, Tim Cook and its leadership. You will win. It might not be today, but it sure will be tomorrow.
I own Apple stock and I’m proud of it. I have all Apple products. I love them. I can find their products everywhere around me. I know it will stay. I read the investor relations page from top to bottom. I may not be a financial expert, but I make sure I understand how diversified their income is. I know why they are #1 in terms of market capitalization. This is why I invested. I don’t trade options. I know their next earnings call will be on November 4th. I know they will launch iPhone 12 separately even soon. It’s not like I know everything about Apple. I heard about it from good leads, not all the news 🙂
I won’t trade Apple with FOMO. Let it go down to $80 or even $50, I’m not selling. Likewise Microsoft or Amazon. you don’t trade them. You own them.
A quick example – In 2014, when I first moved to Canada, Apple stock was trading around $90.
In 2020, the stock was trading at $500. Yes, I understand, the markets went crazy and stocks moved. But the stock would have moved one way or the other with or without the split event. If not today, then tomorrow.
Do you think smart millionaire investors have sold Apple stock now after the massive gain? I bet no, they may have sold some of the wallets, but not all. Either way, it’s profit taking.
Forget Apple and Tesla for a moment, do you believe in owning Netflix, FB, Microsoft, AMD, Amazon, Google, Berkshire Hathaway, Oracle, Adobe? I said own! So go ahead, once you own, follow the company, if earnings are bad and the stock falls overnight, buy more and wait patiently. Rinse and repeat.
Give it 5 years, you will truly be rewarded.
Don’t learn options trading to make a quick buck or two or to get rich. That’s not how things work. Your money can erode overnight. Shortcuts never work.
To make money, you have to invest and wait. But invest in honest blue chips. Pennys are worthless.
Try the cost averaging method, investing is an art, you need to have a lot of patience. Believe and wait for the feedback!
Don’t be affected by market corrections! Follow the right people on social media (investors) and have the right mindset on how to trade.
Only invest the money you can. If you are confident in following one company, only invest in one. You don’t need to diversify to make money.
For example – Investing in Apple, Microsoft, Amazon and FB (the 4 stocks with a 25% allocation) will reduce the risk of your overall portfolio. TRUE. But that doesn’t mean investing only in Apple, you will incur losses. Certainly not. Instead, by investing only in Apple, you can better follow the stock and buy more when the stock is down (dollar cost averaging) and much easier to manage, instead of complicating portfolio percentages and what to hold and sell.
For example, Amazon will do good no matter what. I’m sure he’ll come back 5-10 times over the next 5 years. The product model is as such. Likewise, with Apple, I know it will go back to $500 in the next 5 years. I know I will make money from this investment.
Conclusion
In this article, I have tried to explain the differences between trading and owning quality blue chip stocks.
Never opt for risky investments such as options trading, it can erode your money overnight. Beware of these get-rich-quick investing principles. Investing is an art that only a few can master, be one of them. Investments need time to grow.
Always build wealth the right way, one misstep and you will struggle to get back on your feet and lose money.
Invest small but regularly every month. Only invest as much as you can and in companies you believe in.
Thanks for reading. Please let me know your thoughts and comments below.
