Both short-term trading and long-term investing are valid wealth building strategies. Each take a distinct approach to investing, and each has its own risks and rewards.

Short-term trading is a strategy that involves buying shares with the aim of selling them again quickly at profit. Traders look to immediate price movements, with value the key focus, and the nature of the business of lesser interest. Short-term trading can be lucrative, yielding high profits in as little as a few weeks, yet it is also high risk.

Long-term investment is more strategic and, we believe, core to building wealth that lasts. Wealth creation takes planning, considered investments, and holistic financial advice. While trading appeals to some, there are benefits for patient investors.

Warren Buffet Investing Principles

At Newealth, we use proven investment strategies grounded in Benjamin Graham’s value investing principles: focusing on long-term financial security, capital preservation and a disciplined margin of safety. We also value the insights of Graham’s star pupil, Warren Buffet.

Widely viewed as the most successful investor in history, Buffet developed an innovative and robust approach to investing, with key principles that are central to canny investing.

“Our favourite holding period is forever”

One of Buffet’s most repeated quotes is “our favourite holding period is forever”. The core message of this is clear. Rather than short-term trading, investing long-term yields solid returns. He isn’t talking about any type of investment however, but quality investments – established companies with proven performance.

There are practical benefits of long-term investing – less transaction fees, riding out downturns – but ‘forever’ shouldn’t be taken too literally. Holding onto a poorly chosen investment for years won’t transform it into a successful one. It can also make sense to move some assets during downturns, to acquire quality shares at low prices.

The Power of Compounding

Share market value isn’t the only way investments grow. Compounding is a powerful tool that refers to the way asset values increase with a combination of interest earned on the principle and accumulated interest. When you invest you will be given the option for interest to be paid directly back to you or reinvested.

Compounding returns is an effective strategy for steady growth. The longer you leave money invested, the faster it grows. Compounding over years or decades smooths out volatility and may see significant returns.

Buy with a Margin of Safety

For both Buffet and Graham, one of the most important investment principles is to buy with a margin of safety. This means that you buy stock below the estimated fair value, to take into account market shifts.

While some look to specific formulas, the basic principle is that the less you know about a business, the larger the margin of safety should be.

Be Fearful When Others Are Greedy

In 2008, Buffet shared one of his key pieces of investment advice – “be fearful when others are greedy and be greedy when others are fearful.”

This is where behavioural finance comes into play – the notion that psychological influences and biases affect investor actions, with a flow on effect to markets. One aspect of behavioural finance is ‘emotional gap’, which is decision making based on extreme emotions. Market plunges trigger anxiety, leading to knee jerk reactions, which can have consequences.

On the hand, following the crowd (‘herd behaviour ‘in behavioural finance terminology) directly affects investment value, with mass sell offs triggering sharp asset declines. Sell during a downturn and you not only risk losing money by selling cheaply, but you also miss out on potential returns once the market recovers.

Remember that market falls may provide a prime buying opportunity, should you stick to your goals and avoid following the crowds.

Time in the Market Beats Timing the Market

Trading has a focus on timing. Successful traders need a strong insight into market performance and factors that influence share movements, with the aim being perfectly timed buying and selling.

Long term investing on the other hand, isn’t about timing, but about staying invested, riding our market waves, and building wealth carefully and sustainably over years.

Tax Efficiency Differences

There are practical considerations with any investment, including trading fees and legal obligations. As outlined by the Australian Tax Office, there are different tax obligations for traders and investors.

Hold shares as a trader and they are treated like trading stock in the ordinary course of a business, with gains treated as income and losses and cost deductible in the year incurred. Buying and selling shares at high volume also incurs large brokerage fees.

As an investor, your assets are subject to capital gains tax (CGT) when you sell them, your costs are considered at the time of selling, and capital losses may be used of offset capital gains. If you change from an investor to a trader, or vice versa, the treatment of your profits or losses also changes.

A professional financial adviser can provide tailored advice on tax efficiency, ensuring your investments are structured to avoid unnecessary taxes. It can be complicated and financial or legal advice is important.

Where a Financial Adviser Adds Value

Successful investing isn’t about reacting to headlines – it’s about following a well-structured plan.

Comprehensive financial planning, strategic asset allocation, patience, and emotional control, all contribute to sustainable wealth management. Frequent trading and attempts to time markets are less likely to build real wealth.

Working with a financial adviser helps you align your investment strategy with personal goals, effectively structure a diversified portfolio, manage risk, and reduce behavioural mistakes. Holistic financial planning – including tax planning, cash flow management, personal insurance and retirement strategies – help you stay on course to your financial goals, during every life stage.

At Newealth, we’ve been helping our clients build real wealth for decades.

If you’re unsure whether your current investment approach aligns with your long-term goals, consider speaking with us. We will assess your current situation, listen to your goals, and develop a strategy built for the future.

General Advice Warning:

The information in this blog is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider whether the information is appropriate for you and seek professional advice before making any financial decisions.
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