In the last few years, I have read tons of finance-related books and books related to investments, and after reading all these books.
I came to the solid conclusion that I think fundamental analysis and long-term investing, called value investing, are the best ways to invest money and achieve long-term goals.
I used to believe it well, and whereas trading, on the other hand, technical analysis, and reading charts, I keep myself away from all such things, and I don't recommend people go for them.
But recently, a book has challenged my belief! How Jim Simons solved the quantum revolution
I found this book very powerful, especially Jim Simons. I found him very interesting! And I think his perspective is worth learning, which we should learn!
These days, I am also seeing people educating themselves about education, but on the other hand, trading is also in trend.
Why is trading a trend?
Everyone is trying to be a trader these days. So, I decided to make a video on this topic! Let's see which one is the best thing, according to me: trading or investing?
I'll give you my personal opinion at the end of the video, but for now, I'll share some facts with the help of this book about investment and trading without getting biased, so that you can decide for yourself which one is better.
Value investing, for the long term, or trading Guys, this amazing book is about Jim Simons, who is called the world's richest mathematician.
Jim Simon is the world's richest mathematician.
His net worth is more than 2800 crore rupees, that too in dollars. And the most important thing is that most of the billionaires to whom you listen usually own big corporations like Jeff Bezos, Elon Musk, Tata, and Ambani!
On the other hand, they are investors who invest in big companies, invest long-term, and get rich! But Jim didn't choose any of these ways.
He started his career by trading, and then he founded a corporation named Renaissance Technologies, where he does mathematical and statistical analysis using quantitative models.
You know, Jim has been a math professor at Harvard University! He has worked as a secret agent for the US! He was the first person who used computers well for trading while using the data!
And he has also operated a hedge fund, the Medallion Fund. And you know the track record of the Medallion Fund is the best in history! It has given more than 62% returns every year.
After deducting all the fees and taxes, this fund has given more than 37% returns every year. Whereas if you see US Index Funds S&P 500, its average return is around 11%.
In fact, as you know, the track record of Simon is better than that of Warren Buffet. So does it mean that you should leave value investing and become a trader?
Well, there is nothing like this! But I am going to tell you many interesting things in the article that will help you understand the perspective of both sides and will help you make a better decision about what you should do!
I am going to share five specific points one by one, which are very important for you to understand.
Point 1: Concepts of Investing and Trading
If we talk about investing, it is a long-term game where you invest money in a stock for a long time.
Long-Term Game:
like for 10 years, 20 years, or 30 years! Because here, you invest money in your business. And to make a business big, it takes many years.
It takes even 10–20–30 years to grow big. If you see the graph for a long time, which is visible on the screen right now, if you check it, you will see that its value keeps increasing day by day!
There would be corrections and crashes, but if you look long-term, the market always goes upwards. And this is a big fact.
Due to this, if you invest in index funds for the long term, you can think that you will get good profits in the long term.
Maybe you see negative returns in 5–10 years, but if you see the graph for 20–30 years, then you will definitely see a positive graph!
And here you get to see the power of the compounding effect. Your money gets multiplied in the long term! Which makes you very rich after a point of time.
Let's discuss trading.
On the other hand, let's talk about trading. Trading is a short-term game; here you buy any product like stocks, crypto, assets, options, or real estate, so the game is not about holding it for the long term!
Your goal is to make a profit out of it as soon as possible. See, it's not that trading is a new concept. It is a very old concept that has been going on for thousands of years.
And the basic principle of this concept is very simple. Which is buy low and sell high? " Everyone tries to trade.
Yes, many times, people do short; that is a different thing. But usually, it's 'Buy low and sell high'. Here, it's not that you keep investing for years!
Here, people sell things in a week, a day, or even a minute to make a profit. And here, you don't care about company price, market, value, news, etc.
You don't have to care about even the business model. People go where the volume is to make a profit.
Point 2: Difference between an investor and a trader
To understand the difference, let's take the example of people who are on top in both areas. First of all, we will see Jim Simons, who is known as the world's best trader.
And then we will see Warren Buffet, who is known as the world's best investor. First, let's have a look at Jim's story, which is very interesting.
You know, Jim has been fond of math since childhood. He has been understanding deep concepts of math since childhood, which most people don't understand.
For example, if you have to go from point A to point B, but whenever you try to walk, you can walk up to a half distance.
So if you do this thought experiment, the result is that no matter how much you walk, you won't be able to reach your destination!
If you are walking up to half of your destination, Simon started understanding such things in childhood. That's why, at the age of 23, Simon completed his Ph.D. in mathematics.
After which, he achieved very high success in his career in mathematics! But after a point, he started getting bored.
He wasn’t getting to see the huge challenge in math! He used to keep explaining the same things he studied, which was not challenging for him!
That's why, when he got a chance to join IDA, a government agency, he joined it. His job was to crack the Soviet spy codes by reading random data and analyzing it.
When he joined IDA, he performed very well! Before him, IDA was performing very badly. They weren't able to crack any spy codes in Russia.
When Simon joined it, he cracked many spy codes with his friends and found out the meaning of huge random data by using mathematics.
But for some reason, he was fired. After that, he started teaching at a university! The thing was that Wall Street was near this university, and Simon always had a dream of getting rich!
That's why he started getting interested in the stock market. All the things he learned in the stock market in the secret agency extracting data from random numbers, analyzing it, and predicting the future.
what could happen and what not he started using all the knowledge in the stock market.
his first hedge fund was Mona Metrics, in which he was having good success, and that too at a time when there were no computers.
He used to pick up a lot of data and analyze it one by one to determine which companies would go up and which would not.
After that, he formed multiple companies with different people! And finally, he formed a company named Renaissance!
In the Renaissance, he hired multiple mathematicians who had worked with him and multiple mathematical rules that he formulated himself.
By using them, they started cracking the stock market. In fact, you know, multiple systems that they used to use earlier are being used in AI these days!
It's not that he always had success. He got to see failures multiple times, but if we look at the long run, he made a lot of money through trading.
And especially with the Medallion Fund he started, he gave people more than 100% returns, and it's not that he gave results for one time only;
he gave results consistently for many years, due to which he is considered the greatest trader of all time. Due to this, you can say he became a billionaire.
It was Jim's story! Now let's have a look at Warren Buffet's story, which you would have heard before. Warren Buffet has been investing since he was 11.
And always focus on value investing. He focuses on the businesses of those companies. He reads their annual reports, sales, revenue, past performance, leadership, and future plans.
He understands them well by analyzing everything. And if he thinks that everything is good, only then will he invest in that company!
And after investing, he waits for multiple years to achieve success! And when the company gets profitable, he doesn't sell like this! He lets the money compound, after which he keeps getting dividends from the company!
But yes, this whole process is long-term! You can say there is no limit to money in trading. The more risk you are willing to take, the more reward you can get and the more loss you can make.
Whereas investors like Warren Buffet's way can't make you rich quickly! In fact, you know, investors like Warren Buffet earned their first billion after the age of 50.
He has to pay the tax when he cashes out the investment, which means that if a person is investing for 20–30 years, then he has to pay a long-term capital tax on the profit, which is usually 5–10%.
A trader trades every day! So, first of all, he has to pay a 1-2% brokerage fee, and on the profit of every trade, he pays 10–30% tax according to the trade.
Point 3: Risk and reward
When Warren Buffet was asked what he thought about Simon, he said, I don't know math. And he is very smart. I am not as smart as him!
I don't know about trading. And trust me, if trading was something that everybody could do, then I would have done it already!
Basically, Warren Buffet, who is already a value investor, told himself the biggest difference between a trader and an investor.
Not everyone can become a trader. And he is not lying. There is proof of it. You know, of those who trade after 6 months, only 16% of them are profitable.
What happens to 84% of people? No one knows. You can say that trading is a proper profession; it's not a strategy that you can use to get rich!
A trader does a full-time job every day where he makes a profit sometimes and sometimes he makes a loss.
So guys, if I explain to you, there is a huge risk in trading, but there is a reward, and if you do it well, you can get it. But yes, luck is also a great factor here.
Whereas there is less risk in investing, especially in long-term investments, you will get rewards gradually! It can't make you a billionaire overnight.
If we see some other points, you get 8–12% average annual returns in investing, whereas in trading, you can earn up to 15% a day, which is 144% annually!
But it's not that easy! Because reward always comes with risk in the stock market. Selling things for profit consistently is very hard.
Point 4: Fundamentals of Investing and Trading
What is the difference between investing and trading? You do a fundamental analysis of a company when investing.
When you read the annual reports of the company, you get to know about the owner, how good he is, how his leadership is, and how the team and vision are.
Every minute and every big detail about the company so that you can know well how the business is working.
When you research all these things, you come to know whether the fundamentals of the company on which a good business can be built are strong or not and how good returns it has given in the past.
Based on this, you can decide how much return it will give! People invest for the long term by doing fundamental analysis.
Whereas the focus isn't much on fundamentals in trading. The focus is on technical analysis.
Here, you pick any company, no matter what its name is, no matter who the owner is, how the leadership is, or how much money it makes.
You just focus on some things, like candle charts. You study them deeply, follow market news, and predict whether the stock will go upward or downward, depending on the graphs.
If you guessed right, there will be profit; otherwise, there will be loss! Here, the focus isn't much on the fundamentals of the company!
This thing gets very tricky sometimes. I understand that technical analysis would work, but the problem is that people start using their intuitions.
I think I should do this. And many times, they make guesses and do trading in which there are 50% chances of being right or wrong. Maybe the experts could crack it, but most people book losses here.
That's why you need to understand. Comment down with what your opinion is about this.
What's best for you?
Whatever I am saying in the article, I am trying to give you an unbiased opinion without giving my own. What should you choose out of both?
I want you to ask questions yourself! First of all, what is your end goal? How much money do you want to make, and at what time?
Next, how is your financial situation? And how much risk can you take now? How focused and disciplined are you in the stock market?
How much time are you ready to dedicate? If you answer all these questions, you will know what you should do! See, I understand a simple thing.
And I want to explain to you that investing and trading are connected, but both of them are very different things. Both of them are related to the stock market.
But one thing you can do with less risk and in less time, whereas if you do trading, see it as a full-time job, which is a game of high risk and high reward.
To end this article, I just want to give my personal opinion! A great lesson I learned in my life is that whenever a person runs behind in making money quickly, he loses money most of the time.
If I talk about trading, Simon was a mathematician who was using big computers to predict what would happen and what would not.\
And in the end, if you see, he didn't make billions of dollars from trading; he only made his own hedge fund; he started his own companies.
And after starting those companies, he got so rich! As an individual, if you see that my personal opinion is very strongly related to this, I think if you are thinking that you will make a lot of money from trading and will get rich, I think it is very rich, and facts are telling all such things.
Whereas if you become a long-term investor, that is much better, and it has been told in a book named 'The Millionaire Fastlane'! If you want to get rich quickly, then this is not the right way.
If you invest your money and wait 30–40 years, the money will increase. This is true, but it can't make you rich quickly! You should do business.
All these things are very interesting. You can make a lot of money from it. And then start investing that money for the long term!
I think this is a better strategy; it is one of the best strategies that I am using myself, and I think you should also use it.
Similarly, talking about trading is a very risky game for predicting the future. Even the smartest people can't predict what the future will be.
Yes, AI and all these things are coming, and all these things have limitations! I think trading is a very risky game. I think most people should avoid it.
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