Why passive and indexed strategies, that take a buy-and-hold stance, offer lower fees and trading costs, as well as lower taxable events in the event of selling a profitable position. Still, passive strategies cannot beat the market since they hold a broad market index. Active traders seek 'alpha', in hopes that trading profits will exceed costs and make for a successful long-term strategy.
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Trading may be a relatively recent phenomenon made possible by the technology of communication networks and therefore the development of the paper ticker. Details of stock transactions – stock symbols, the number of shares, and costs – were collected and transmitted on paper strips to machines located in brokerage offices across the country. Specialized employees using their memory, paper, and pencil notes, and analytical skills would “read” the tapes and place orders to shop for or sell stocks on behalf of their employer firms.
As a young trainee on Wall Street within the early 1960s, I remember the gray-haired, bespectacled old men bent over and concentrating on the inch-wide tapes spooling directly into their hands from the ticker. As technology improved to supply direct electronic access to cost quotes and immediate analysis, trading – buying and selling large share positions to capture short-term profits – became possible for individual investors.
While the term “investing” is employed today to explain to anyone and everybody whoever buys or sells a security, economists like John Maynard Keynes applied the term in a more restrictive manner. In his book, “The General Theory of Employment, Interest, and Money,” Keynes distinguished between investment and speculation. He considered the previous to be a forecast of an enterprise’s profits, while the latter attempted to know investor psychology and its effect on stock prices.
While there are observable differences within the goals and methods of the various philosophies, their successful practitioners share common character traits:
Intelligence. Successful investors, speculators, and traders must have the power to gather and analyze diverse, even conflicting, data to form profitable decisions.
Confidence. Success within the stock exchange often requires taking an edge con to the bulk view. Warren Buffett advised during any Times editorial, “Be fearful when others are greedy, and be greedy when others are fearful.” during a letter to Berkshire Hathaway shareholders, he noted the Noah Rule: “Predicting rain doesn’t count. Building arks does.”
Humility. Despite one’s best preparation, intention, and energy, errors occur and losses inevitably happen. Knowing when to retreat is as important as knowing when to dare. As Sir John Templeton, founding father of the open-end fund family together with his name, said, “Only one thing is more important than learning from experience, which isn't learning from experience.”
Investing stock exchange
Investors shall be long-term owners of the businesses during which they purchase shares. Having selected a corporation with desirable products or services, efficient production, and delivery systems, and an astute management team, they expect to profit because the company grows revenues and profits within the future. In other words, their goal is to shop for the best future earnings stream for rock bottom possible prices.
Investors use a valuation technique referred to as “fundamental or value analysis.” Benjamin Graham is credited with the event of fundamental analysis, the techniques of which have remained relatively unchanged for nearly a century. Graham was primarily concerned with the metrics of companies.