Investing and Trading are two completely different skill sets and that can yield two drastically different results, so we think knowing the difference is pretty important.
As always, our goal is to break down the confusing world of finance for you. So, here's an illustration of the difference between investing and trading:
Imagine your grandmother leaves you an oil painting in her will. It is worth $300,000 and you hang it on the wall in the dining room. You pass by it every day, and it never adds one penny of cash flow to your family. You don’t even like it that much, but you keep it because it is an INVESTMENT. It does not create wealth for you. It was an investment that your wealthy grandmother made to protect the wealth she already had.
However, think about this. What if you read several books on fine art, and went to several auctions, and spent hours in museums learning to recognize fine art, and learned the skill sets for art trading? Then you take the painting to an auction and sell it for $350,000. You take this money and buy two new paintings by well-known artists worth $150,000 each and keep the $50,000 as income.
Then you wait six months, and post the two paintings on an art site, and sell them each for $200,000, making another $100,000 in income. You continue to do this every six months. Before long, you have created wealth by TRADING oil paintings.
You can do this with anything. You could trade cars—buy a junk car for $150. Fix it up, and sell it for $1,500, and do this many times a year. Buy a fixer upper house, fix it up, sell it for more, and do this often, so you are creating wealth by trading paintings, cars, and/or houses. Build a factory and manufacture tennis shoes. Make them, mark them up and sell them at retail, now you are making money trading shoes! Why not attempt to create wealth through trading stocks, rather than just investing by buying and holding?
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