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Short Term And Long Term Investing-what Should Be Your Research Focus
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Investors are often classified as short term, long term, momentum, contrarian, and in many other ways. Irrespective of these different classifications, they all buy and sell shares (or share futures or options) on the same exchange platforms, of the same companies, with the same objective – Profit.
They all try to predict the future and base their decisions on some research. Just as different types of investors, there are different research approaches they follow.
Those who believe in long term investing do not get bothered by the daily stock price movements and treat their investments as an investment in their own business, in that they are willing to give their investment some time to mature and grow. Naturally then their research focus is on things like future plans of the company, industry prospects, potential demand for company products or services in future, competitive threats from other players in the same industry etc. Unless something changes materially, they do not sell their stocks.
Short term investors or traders on the other hand are constantly monitoring share price movements. Their intention is to profit from the constant fluctuation in stock prices. Their time horizons differ and can vary from a few months to a few days (and even a few minutes or seconds in some cases, fuelled by a rise in the algorithmic or black box trading). In all cases their research methodology differs. Some of them try to predict quarterly results, while others trade on the basis of news flow or in anticipation of future events, for example--the possibility of a favorable outcome to a long standing legal dispute.
Many of them also rely on technical analysis (behavioral studies) to predict future price movements. Irrespective of whether you are a short term trader or whether you believe in long term investing, you must keep two things in mind:
1. Define your approach clearly and do what you had set out to do in the first place. Often long term investors get frustrated and start trading their positions. This could have disastrous consequences for your portfolio.
2. Have a research focus - long term investors conduct their research factoring all strengths, weaknesses, opportunities and threats (SWOT) which the company faces throughout the normal course of business. Conviction and discipline is the key to success in long term investment. Once a share purchase decision has been made, backed by sound research, short term price movements should have no bearing on your investments.
Short term investors on the other hand must closely focus on the happening of expected events and must keep a strict stop loss target in mind. If the price of the underlying security does not behave as expected, a short term investor must be quick to book losses.
True that every investor should research before investing, what is more important is to understand your investment objective and time horizon.
Long term investing is for people who are looking for steady capital growth over a period of time. Short term investing on the other hand suits those who may be looking for quick returns and have an appetite for a certain degree of risk.
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