Long Term Investing

Either people trade in stock market where they buy stocks and hold for a short term or invest in stock market where they hold stocks for long term. Investing in stock market is generally risk free unless for few systematic risks, whereas trading is nothing but speculation or Speculation.

We all know that the stock price usually retraces the growth in the company's earnings. For example, if the earnings of company 'X' increases by 20% this year then the stock price is expected to rise by 20% over a period of a year. For a stock to grow 20%, the price should go up or compound by 0.050% each day. Which rarely will happen in stock market. Each day the prices either move up by 2-3% or go down 2-3% and finally at the end of the year one can find them trading at a price much higher compared to the year before, as the stock would have retraced the growth in earning to maintain a fairly valued P/E as well as a PEG Ratio.
Therefore, when people bet on long term they very rarely lose money in market until and unless they invest in a price competitive business or in businesses with bad fundamentals. Whereas if one trades, no matter whether the fundamentals of the company is good or bad, the trader is no better off than a gambler as the course of the stock price will be unknown in the short term and will be driven by the sentiments. 

Here are few example how do stock prices retrace the growth in earnings.

 

2011	2012	2013	2014	TTM
12.88	16.86	21.4	26.41	31.59

Total (%) 245.263%

Earnings Per Share

2011	2012	2013	2014	2015
32.41	40.19	45.34	58.26	69.49

Total (%) 214.409%

The stock market in spite of a 65%+ crash in 2008-09 has managed to compound at a rate of 14.9% over a period of 10years which is much higher than all other asset classes.