Difference between an Investor and a Trader

As a trader, I made my entry decisions by analyzing the price & volumes only (because I did not had conviction on indicators). I used to see a major trend in 1day & 1week timeframe and eventually wait for the price to recently break the lower high after a series of downtrend i.e. lower high & lower low formation as then the probability is high that the underlying price would go up (either retracement or change in trend)
Now, when I am doing fundamental analysis, I only play on long term horizon. Firstly, I look for high quality & consistent businesses and buy them when they are trading below their fair value and I see some margin of safety. Here, when analyzing the stock I have the mindset that it is the REAL BUSINESS that I am buying and not a stock & I am betting on my conviction that the stock (noo) but the main fundamental business will do well in the future.

When the price goes down then, as a trader when price hits my stoploss, I will exit by booking a loss but an an investor, I will be happily buying more as the price goes down (here assuming that the price has gone down only because some temporary reasons and the fundamental quality of the stock is the same) I will happily buy more shares of the company at even more discount because I know that it is a quality company and will be back on track after sometime & the share price will go up (this logic is based on the probability that in the long run, price is a derivative of the underlying fundamentals of the company).

It is very difficult to make a multibagger using price & volume analysis because here you will have a target price to exit (even if you wont have any target price, its difficult to hold till multifold returns because in the meantime you would have got many sell signals based on price & volumes analysis) but with fundamental analysis your probability of achieving multibagger returns increases as you continue to sit on the business that are fundamentally doing good and often they are the ideal candidates for getting multibagger returns.

In technical analysis, you bet on your conviction that the price will move in a certain direction because It did so historically due to participants psychology and you believe that it will remain constant.

In fundamental analysis, you bet on your conviction that the CORE BUSINESS will do good in the future and ultimately in the long run, price will follow the fundamentals and you make money.

Bottomline - Use the method which you logically understand the best and have conviction in.


An interesting video by Patrick Boyle on the same topic.