The life of a professional stock trader might seem glamorous but it’s not all that it is hyped up to be. Obviously, they are looked upon with envy because they wear nice suits and people generally associate success and an Ivy League education with these individuals. However, if there is one thing the recent downturn informs us is that easy money made in the stock market can be wiped out just as easily. That is why you need a disciplined approach to investing versus one that takes risks with your money.
People often associate risks with the ability to make real money in the stock market. This is one of those investment myths because the true way to make money is to keep it. You stay rich because you’re not throwing it away by investing in companies that are not worth both your investment and time.
Let’s take a look at the world’s most famous and successful investor in the world: Warren Buffett. He invests in longterm stock picks because he believes these companies are worth holding and that they are growth stocks as well. He patiently sits on billions of dollars in cash trying to find suitable companies to invest. However, constrast this with day traders and investment professionals who go in and out of positions daily. While this arguably could make sense for professionals (then again, look at how much money they lost in the recession) this really does not make sense for the amateur investor because the transaction fees that alone eat away at your investment money. And this does not take into account of whether or not your shares has gone up. So, you might be losing money and paying for the privelege of selling the losers as well.
Therefore, if you want to make money in the stock market, listen to what Warren Buffett advises: never lose your money in the first place and you can do this by researching for stocks that you would like to keep for the long term. If you have in mind a long term investment horizon, short market fluctuations won’t matter much. By doing your diligence in market research and investing for the future, this will reduce your risk and make you money while investing in the stock market.