How to Invest in the Stock Market for Long-Term Gains: Short-Term vs. Long-Term Investing Strategies, Technical vs. Fundamental Analysis for Beginners

 

Investing in the stock market is one of the most popular ways to grow capital. However, there is an ongoing debate about whether it's better to invest in the short term or long term, and which methodology is best for doing so: technical analysis or fundamental analysis. In this article, we will explore the characteristics of each approach and when it's most appropriate to use them. Additionally, we will share our personal opinion on the best investment strategy.

Short-Term Market Behavior

Stock prices fluctuate constantly, moving every minute and every hour. However, a company remains the same regardless of these changes. Its quality and intrinsic value do not change in an hour or a day, but its stock price does, due to supply and demand in the market.

As analyzed in detail in Module 4, stocks rise when demand exceeds supply, meaning when more investors are buying than selling. Conversely, if there are more sales than purchases, the stock price falls. In the short term, these movements are primarily driven by emotional and psychological factors.

Emotions such as fear of missing out (FOMO) can lead to impulsive buying, while euphoria can create a false sense that the market will only go up, prompting investments without a solid foundation. On the other hand, panic can lead investors to sell stocks in fear of further losses, without considering the company’s fundamentals.

In addition to emotions, the short-term market is also influenced by: News and rumors, Corporate earnings reports, Macroeconomic events (inflation, unemployment, economic growth), Central bank decisions (interest rate changes, monetary policies), Social media and news outlets

This emotional and impulsive market behavior in the short term leads to wave-like movements, as described by the Elliott Wave Theory. This theory suggests that patterns repeat because humans tend to react similarly to similar situations.

Long-Term Market: A More Stable Perspective

As the time horizon expands, market behavior becomes more rational. In the short term, fluctuations can be chaotic, but in the long term, stock prices tend to reflect the actual profits of companies. This aligns with the famous quote by Benjamin Graham:

“The market is a short-term schizophrenic, but it regains its sanity in the long term.”

If we analyze the behavior of the S&P 500 over the past 80 years, we can observe a clear upward trend. On the other hand, if we look at a five-day period, the behavior may appear random. The reason is that, over time, markets reflect the growth of companies and their profits, rather than the temporary emotions of investors.

Technical Analysis vs. Fundamental Analysis

Technical analysis focuses on identifying patterns in price movements to predict future trends. It is based on investor behavior and the repetition of historical patterns.

Fundamental analysis evaluates the intrinsic value of a stock by analyzing financial statements, company growth, and market conditions to determine if a stock is overvalued or undervalued.

Which is Better?

For short-term investments, technical analysis can be more useful due to its focus on immediate trends.

For long-term investments, fundamental analysis makes more sense, as it seeks companies with sustained growth potential.

My personal recommendation is to focus on the long term, as the market tends to rise over time, reflecting the growth and profits of companies. This approach also offers key advantages:

• Greater predictability: In the long term, the value of stocks depends on company earnings.

• Less stress: There's no need to constantly monitor stock prices.

• Security and stability: It is the method preferred by top investors like Warren Buffett, Peter Lynch, and Charlie Munger.

Long-Term Investment Options

There are various strategies for long-term investing in the stock market:

• Index Investing: Buying ETFs that replicate indices like the S&P 500 or IBEX 35, offering simple portfolio diversification and reduced risks.

• Mutual Funds: Allow you to delegate management to professionals, though with fees and limitations.

• Individual Stock Investing: Provides complete freedom to choose and manage your portfolio, although it requires more time and knowledge.

Conclusion

Short-term investing may be attractive, but it is often dominated by emotions and volatility. In contrast, long-term investing tends to rise and reflect the actual benefits of companies. Therefore, a strategy based on fundamental analysis and patience is usually the most profitable and secure. The key to success is education, discipline, and a long-term investor mindset.

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Disclaimer: The content of this article is for informational purposes only and does not constitute financial advice, investment recommendations, or a suggestion to buy or sell assets. Cryptocurrencies and digital assets are highly volatile and may involve significant risks. Always conduct your own research (DYOR) and consult with a professional financial advisor before making investment decisions. The author and the website are not responsible for any loss or damage that may arise from investments based on the information provided.