What is the best way to make Money from Stock Markets? Trading or Investing?

Sensex, Nifty, since 2002 has grown by almost 18 times. There is hardly any asset class which can grow investors wealth at such rates with such volumes! But on the flip side across the crashes of 2000 , 2008 and 2020 have wiped out many of us investors from the markets. And Research Says Most of the Day Traders loose capital in the markets. The only question becomes – How do we ensure that we create wealth and not loose money in stock markets?

The secrets will be revealed here as you read on! Then it is up to You to follow the path that resonates with you! Actually The ways are very few and very simple – the only thing is we have to decide on the path we choose and stick it for years on.. I will classify and make it easy for you to understand here:

1. First Style – Invest Rarely and GO BIG When You DO!

First let’s talk about the style adopted by people we get inspired from, stalwarts like – Warren Buffett, Rakesh Jhunjhunwala, Mohnish Pabrai. Although Mr. Rakesh Jhunjhunwala is a Day Trading Giant too (We will talk about it in due course), but in terms of investing their take is very similar. They do not invest very often, and when they do they go Big. They invest in companies after deep and thorough analysis of the business performance, the management, the headroom for growth, the entry barriers, the concluded intrinsic value of the business and the price. Once they discover a business which is at a fair price w.r.t the intrinsic Value they go ahead with it. But again I would repeat they GO BIG when they find a really good option and they DO NOT buy everyday, rather these are very select and infrequent investments. If you feel you have the understanding and time to analyze businesses at a deep level You should choose this path. If you don’t know and you want to know its best to learn it from Books or take an expert course. Knowing business analysis and intrinsic valuation is really really important and the crux of investing you should make sure that you know it before you dive in with Big Amounts of Money. This is really really important! Our only edge is our performance and that comes from Analytical Bandwidth that we have! If you have some other Profession & don’t have the time but you prefer this path then it is best to go with professionals who can do it for You.

2. Second Style – Invest regularly with adjustments depending upon the market scenario:

Many Ultra Successful Investors, Asset Management Companies, Institutional Investors, and of course Retail and HNI investors go for this style of investing and if followed diligently this produces immense results too! The basic formula goes like this – You invest consistently in the markets. But you keep adjusting the cash to exposure ratio and asset class mix depending on the market valuations. Sometimes in pre-defined schemes even this adjustment is also done away with but that does affect the returns to certain extent. This is the best way for investors specially who have some other profession and cannot give time to deep analytics but want to make the best out of the growth that is on offer! And because most of us find it easier to follow this way not only while we invest ourselves but also when we give money to AMCs(Mutual Funds), the AMCs/Institutions in turn also have their defined regular stock purchase strategies. Although these AMCs have to take care of the costs/timings much more than an individual investor with a demat account has to. You can either do it yourself, or learn it comprehensively and then do it, or give it to professionals who can create a setup that suits you personally.

3. Third Style – “I don’t believe in waiting in the markets. I am a Day Trader.”

Well, Trading is not gambling if you know what you are doing. But reckless behavior can cost You a Lot. If You take unsolicited Tips from every place or just put money casually without doing the necessary statistical and technical analysis, then it becomes very hard to survive in the long term. Statistics tell us that over 80% of the trader loose money in the markets, 10% break even, and the rest 10% make money – little or big. These are not the probabilities you would want to be casual about. Zerodha Varsity is a great place from where you can learn about Trading Strategies and Basics. But the catch lies here – Even According to Zerodha Varisty a ~20% annualized return is great, but according to most new-coming day traders, their expectation is doubling or tripling the money in a year, or 10% every day from intraday option “tips”, or 1 percent every day at least in “intraday” cash. See let me give you the bad news – under the current available methods which are derived from very competent people who have spent their lives and careers doing this – such kinds of returns cannot be achieved on a regular basis. You will very likely loose your capital if you start with the wrong attitude. Of course if you learn to do it properly and you like doing it then you definitely can get results! But you will have rewire your Mind with the right attitude and knowledge to get consistent returns!

4. Combining Trading and Investing – The most effective secret revealed:

Mr. Rakesh Jhunjhunwala has Proven by his 3 decade long career that if you can combine both trading and investing successfully You can get the best results. He is a big time Day Trader and the Best Investor in India. Between 2002 and 2007 his networth grew from 250 Crore to 5000 Crore – a Growth rate of 111%. Right now his networth is 35000 crore. According to him – “Investing is for Capital Growth and trading is for Capital Creation.” But here again, there is a catch here – First, If you are already having a day time profession then creating capital through trading doesn’t make much sense. Yes if you have someone excellent and trustworthy who can do it for You then you can try out at your own risk. Second, the man whose example I have taken puts a tiny tiny percentage of his capital in day trading rest all he puts into investing. Even the profits he gathers from Trading are re-invested in the long term style. In his own words “only 1 Lac Rs” out of his thousands of crores he puts in trading while the rest of capital for trading is leverage which is collateralized. So how should an individual investor go about it? If you have 1 Lac Rs, put 10 thousand into trading and the rest in investing. As you get more confident increase it slightly. And take out the profits that you make and put it into long term investing. You will see your money will grow. If you have 10 or 15 thousand. Try out trading if you strongly feel so, and as I said before, put the profits into long term mode. If you find trading is not working out for you, take a break from it! First, You either learn it well from Varisty (Zerodha), which is a great source or buy some books, or take a Professional Course, or invest for the long term. In either case you have to learn yourself or give it to a professional expert.

[You can learn professional level investing and trading strategies that make money, and at the same time create your own portfolio which is high performance & risk-managed from our solutions.]