Session 8: Investment vs trading: Key differences and approaches
What is investment?
Investing is a long-term approach focused on building wealth gradually through capital appreciation, dividends, and compounding returns.
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Core Characteristics of Investing
1. Expenditure (Spending) Approach
Long-term horizon (years to decades)
Focus on fundamentals (earnings, growth, management quality)
Lower transaction frequency
Emphasis on patience and discipline
Compounding returns over time
Example of Investing
Value of all final goods & services− Cost of intermediate inputs
The production approach measures the total value of output produced by all industries in the economy and subtracts the value of intermediate goods used in production.
It focuses on value added at each stage of production
It works backward from completed goods and services
Popular Investing Approaches
Value Investing (e.g., strategy used by Warren Buffett): buying stocks that appear undervalued relative to their intrinsic worth.
Growth Investing: buying stocks in which the companies expected to grow earnings and revenue faster than the overall market.
Dividend Investing
Index Investing (e.g., investing in the S&P 500 via ETFs)
What Is Trading?
Trading is a short-term strategy focused on profiting from price fluctuations in financial markets.
Core Characteristics of Trading
Short-term horizon (minutes to months)
Heavy use of technical analysis
Frequent buying and selling
Higher transaction costs
Requires active monitoring
Types of Trading
Day Trading – Positions closed within the same day
Swing Trading – Positions held for days or weeks
Scalp Trading – Very short-term trades lasting minutes
Position Trading – Longer-term trades (weeks to months)
Tools Traders Use
Charts & technical indicators
Moving averages
RSI, MACD
Volume analysis
Leverage and margin accounts
Risk and Return Profile
Risk in Investing
Market downturns
Economic recessions
Company-specific risks
However, long-term investors often rely on historical market resilience.
Risk in Trading
High volatility exposure
Leverage amplification
Emotional decision-making
Rapid losses
Trading can produce quick gains — but also quick losses.
Which Approach Is Better?
There is no universally “better” method — it depends on:
Your financial goals
Time availability
Risk tolerance
Market knowledge
Personality type
Many people combine both strategies — maintaining a long-term investment portfolio while allocating a smaller portion of capital to short-term trading.