Using different strategies investors and traders ride growth stocks. Investors seek profit, cash flow and income from dividends while traders seek gains from stock price movement.
Money strategies – planning & managing wealth, Lesson 2, covers how investors and traders both profit from growth stocks. Knowing how to manage growth stock investments helps you grow wealth. Links at the lesson end guide you to related content to learn more.
What’s in this lesson for me?
You learn how successful investors think about and manage investments in growth stocks. That knowledge helps you become a better investor.
Different strategies for one stock
Investors can ride growth stocks with traders although the strategies of investors and traders have many differences. First we discuss the investing approach followed by the trading approach. Investors seeking profit, cash flow and income can find suitable opportunities among growth stocks that also attract traders.
In most circumstances investors seek long term holds while traders expect profit from shorter term price movements. Those differences can produce volatile price movements. Savvy investors play price volatility in quality stocks as dips that they use to add to profits.
Investing approach
The income investing approach seeks portfolio value and growth through time while collecting a steady stream of dependable dividend income. In essence, investors seek the returns possible from owning proven earning power. Companies with long profitable histories and records of excellent dividend performance are most attractive to investors.
Over long periods of time the value of that dependable earning power steadily appreciates with the market. All the while stocks with that earning power continually pay investors to comfortably ride along as shareholders. That comfortable, drama free, conservative investing approach suits income seekers just fine. Most income investors are very content to enjoy both the steady stream of dividends and nights of worry free sleep.
Portfolios holding the best of the well established income producers get as close to autopilot management of their growing financial security as investing can get. Most of their portfolio management consists of keeping up to date on each company held in the portfolio. As long as the earning power and outlook for each company does not change, the portfolio needs no change. We happily carry on collecting secure dividends.
Income investors want viable paying positions to hold for multiple years. Income investors only sell to correct mistakes or because negative developments or changes have occurred in an investment. They are in for the very long haul. They manage their portfolios with patience and long-term thinking while focusing on income and security.
Trading approach
The trading approach offers more short-term profit potential along with greater drama, excitement and action when compared to conservative income investing. When played well, in the right circumstances, trading produces higher returns. Trading can range from solidly conservative positions to high risk, high reward stock plays.
Just as more conservative trading and investing approaches can overlap, the more aggressive trading action overlaps with extremely risky speculating.
Using a trading approach most effectively, requires considerably more knowledge, time and very importantly, acceptance of more risk. Very critically, managing an active trading approach requires closer monitoring of positions and performance.
While trading works extremely well as a wealth builder, there is a cost. There is no such thing as an autopilot approach to high performance trading. The trading approach needs knowledge, time, attention, decision-making and the ability and willingness to take prompt action.
Traders think and act differently from income investors. Traders focus on changes in market valuations and growth opportunities. Time frames for personal trading range from a few seconds to many months. Traders seldom carry positions for more than a year.
Conservative traders seek to buy a business that shows both revenue and bottom line growth. Aggressive traders seek only stock price movement. All traders want action in stock price movement and they want it now!
Successful traders often play stocks with momentum. Momentum stocks have rising stock prices with increasing numbers of shares traded. Momentum traders buy stock as soon as prices and volumes begin to rise. Then they carefully and constantly watch their positions for progressive price movement. They sell when prices stop rising.
That approach needs close and regular attention. They see any dividends collected as welcome bonus payments on top of the desired equity growth.
Combination pays well
There are lessons for conservative investors to learn by looking at the approach taken by stock traders. Consider combining your conservative investing criteria and the rising stock prices traders seek, as a way to sharply improve portfolio performance, while managing risk.
Investors can control risk by continuing to apply their financially conservative standards to any stock picks. Stocks that are rising in value will attract traders. Picking the dividend payers from among those rising stocks provides a list of prospective investments.
By considering only those that pay dividends and still meet the other conservative financial standards, you keep away from the higher risk trading stocks.
That gives you a practical third way, the middle ground that provides the risk management of income investing with the equity growth potential of a stock traders play. Still, the traders will leave after the excitement dies down or even pauses. Traders sell early, income investors stay for the longer ride.
A very happy outcome can result. Growing companies do continue growing year after year. That means, when the best circumstances come together for investors, decimal points can move! You have the 10 bagger of investor dreams in your portfolio delivering a dramatic impact to your wealth! Enjoy the ride!
Why this lesson matters
Investors understanding that growth stocks attract both investors and traders gain insights. In general investors seek long term holds while traders seek to profit from shorter term price movements. That can produce volatile price movements that investors can play as dips. Playing dips well lets informed investors add to gains and put more money into their pockets.
Takeaways from lesson 2, Investors & traders ride growth, includes:
Investors and traders ride growth stocks with different strategies. Investors seek profit, cash flow and income while traders seek price gains.
- Both investors and traders profit from growth stocks.
- Investors focus on reliable dividend paying stocks.
- Investors hold long term.
- Traders seek gains from shorter term price movements.
- Traders gain by riding stocks with prices moving higher.
- Rising dividend paying stocks attract both investors and traders.
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Money Strategies: Plan & Manage Wealth:
Introduction: Money Strategy: Plan & Manage Wealth Lesson 1
Investors and traders ride growth Lesson 2
8 Big money matters Lesson 3
Nelson Mandela touched investors Lesson 4
Market time grows money Lesson 5
Stock market dip opportunities Lesson 6
Investing strategies taking profits Lesson 7
5 Money making strategies Lesson 8
Investors can deposit and WAIT! Lesson 9
Change moves markets forward Lesson 10
ETF Revolution changes investing Lesson 11
Benjamin Graham market mix Lesson 12
Next lesson 3:
Investors have 8 big money matters to deal with, money, income, debt, saving, spending, investing, risk and time. To make money work we must deal with these matters! Making a plan makes you a money making investor. .
Have a prosperous investor day!
Bryan
White Top Investor
[email protected] WhiteTopInvestor.com
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