Several times people ask me if I trade besides just investing for the long term. People want to trade so that they can have a regular cash flow, which can be used to fund their investing. I understand that very well.
It is possible to trade and invest at the same time. Rakesh Jhunjhunwala is one of the few rare people who does it quite well. However it is not something everybody can do without having the necessary discipline to keep trading and investing separate.
Most people end up mixing the two based on the way their investments are doing and that is one of the worst things that can happen. They enter with a trading mindset in a stock, and when the stock doesn't move up or falls 15-20% they end up telling themselves and everybody around them that the stock was meant for the long term.
On the other hand people who call themselves investors, enter a given stock and as soon as it goes up 15%-20% in a few days they end up selling. Only to see the stock growing exponentially in the next 3-4 years.
I have made the mistake of being both a trader and investor in the past and learnt from it. I am glad I made those mistakes, because they taught me a lot. I learnt that my mindset was built more for the long term. I learnt that I have many other things to do and can't sit hours in front of a trading terminal for the rest of my life.
Those who plan to do both, i.e. trading as well as investing must keep two separate accounts. I know investors who also trade, very clearly maintain that they have separate trading and investing accounts. Another thing you need to know as a trader is that you need to spend time understanding technical analysis and also keep your emotions under control. You need to know when to book your losses and when to book profits. It can get very stressful and very few people can do this for several years. Most people do it for sometime and then move on to other things with the money they have made.
As a trader it also helps to have internal contacts besides just technical knowledge. I'm sure all of you understand what I mean.
Personally I have someone who is very good with technicals trading for me with a small part of my capital. This keeps my head clear and lets me study companies just for the long term most of the time. Of course sometimes a few trades do come in that are too tempting to miss.
Trading isn't for everybody and you should trade only if you have the time, dedication and emotional strength to handle the volatile nature of markets. Your broker might encourage you to trade more even as a beginner and will tell you how you can buy now and exit in the next two days to make a quick buck. But please remember that the main goal of a broker is to make brokerage and not to make you wealthy. Of course not all brokers are this way - but many are this way.
If you are somebody just starting out in the markets, please note that markets are unpredictable and it isn't the best idea to depend only on them for a regular cash flow. You need to have some other source of income- at least till you make sizeable amounts of money.
What do you think? Do you trade and invest? Have you traded and invested in the past? How has the experience been? I would love to hear from you. Feel free to share your ideas in the comments section.
Happy wealth creation!