I’d like to share a little story. When I was working on my final project—right when the coronavirus was spreading—people couldn’t leave their homes, the economy had stalled, and many stores were forced to close, so a lot of people wanted to earn extra income from home. One side hustle that was the talk of the town at the time was investing in or trading stocks. Buying and selling stocks has become very popular because it’s easy to get started and doesn’t require a large amount of capital. As a result, many people are interested in giving it a try.
There are many companies that have listed their shares on the Indonesia Stock Exchange (IDX); as of June 24, 2026, there are 956 companies whose shares you can buy. The stocks available for purchase vary widely, including BBCA, BYAN, GOTO, and many more. With so many stock options to choose from, it’s easy to feel overwhelmed about which ones to buy. Not to mention the ever-changing policies that affect stock prices. The sheer volume of information can make it even harder to make a decision. If you want to build a portfolio through stocks, which strategy is better: trading or investing?
Is it more profitable to be a long-term investor or a trader? There have been many arguments that traders have more advantages than investors. But is trading ultimately more profitable than investing? To answer this question, I’ll break it down step by step, starting with the basics, so we can draw a more informed conclusion.
The Difference Between Traders and Investors
In the world of stock trading, there are two very different types of behavior when it comes to buying and selling stocks. Based on the time frame of their buying and selling activities, people are divided into two groups: long-term investors and traders.
A trader is an investor who actively buys and sells stocks. This differs from an investor who holds stocks for a relatively long period of time. Traders can also be called speculators because their buying and selling decisions are based on uncertainties. Traders tend to seek short-term profits. A trader operates on a “buy and sell” principle, buying and selling stocks based on chart analysis and various news reports to make a profit. Traders prefer startup stocks because their prices tend to rise very rapidly, even though the companies’ financial stability has not yet been proven.
Investors tend to defer the profits they stand to make. They tend to hold onto their shares until their financial goals are met. For example, I plan to buy shares every week for 250 thousand rupiah until I turn 50. Therefore, I won’t sell the shares I own until my goal is achieved, no matter how much their value rises. An investor adheres to the “buy and hold” principle. Because of this, long-term investors prefer stocks of companies with proven fundamentals.
In the long run, which is more profitable?
In short, it is more profitable for long-term investors than for traders. While traders do generate more profits in a relatively short period of time, the risk of losing those profits is also much greater compared to that of long-term investors. Long-term investors build their profits gradually without exposing themselves to excessive potential losses. In addition, long-term investors have one advantage that traders do not: the compounding effect.
Compounding is the process of generating returns from the initial investments you made in previous periods. This creates a snowball effect that exponentially increases investment returns over time. Exponential growth differs from linear growth. With linear growth, the rate of growth remains constant—for example, from 1 to 2 to 3. In contrast, exponential growth increases from 1 to 2 to 4, and so on.
This effect of compounding is what makes the biggest difference between the methods of traders and long-term investors. In the early stages, traders earn much higher returns than long-term investors. However, if a long-term investor can stay focused on consistently buying stocks according to their plan, there will come a point where, if we compare the charts of a trader and a long-term investor, the trader’s chart will appear as a straight line, while the long-term investor’s chart will resemble a hill. This is due to the compounding effect. We’ll simulate the calculations based on the case study below.
Case Study
To help you understand this further, I’d like to introduce two people who are actively investing: Budi and Ani. Budi and Ani are ordinary workers who each have the same monthly investment budget of one million rupiah. Budi has chosen to be a long-term investor because he’s too lazy to keep up with the news and market updates, while Ani has chosen to be a trader because she wants to earn higher returns. Both have the same amount of capital to invest in stocks—one million rupiah each month.
To be fair, I’ll outline two scenarios for Ani: in the first scenario, Ani is a skilled trader who actively trades every day and achieves high returns; in the second scenario, Ani is an average trader who still succumbs to FOMO when buying and selling her stocks. As for Budi, he simply buys stocks regularly every month. After ten years, here are the calculated returns for Budi and Ani.
Final comparison table (same initial investment: Rp120 million total over 10 years)
| SStrategy | Net Return/Tahun | 10-Year Results | Difference from Total Deposits |
|---|---|---|---|
| Budi — Pasif (buy & hold) | 12% | Rp221.910.000 | +Rp101.910.000 |
| Ani — A skilled trader | 16% | Rp260.930.000 | +Rp140.930.000 |
| Ani — The average retail trader | 8% | Rp182.850.000 | +Rp62.850.000 |
To put this into perspective: if we assume that Ani has consistently outperformed the market for ten years, then it is true that Ani would beat Budi in the final results—but this scenario is nearly impossible. According to SPIVA (S&P Indices Versus Active) research and a study by Barber & Odean, traders tend to fall into Scenario B due to several factors, including FOMO.
In Scenario B, Ani is 39 million behind Budi, even though she has to stare at her laptop screen every day to buy and sell stocks. Not to mention monitoring market news, which takes up a lot of time. Budi simply needs to set up auto-trading, and stocks are purchased according to his predetermined plan. Budi doesn’t have to look at the screen at all.
Tips
Here’s a quick tip for those of you who are unsure which stocks to buy: the best approach is actually to research the performance of the companies whose stocks you’re considering—but then again, who has that much time? I have a fairly simple method for buying stocks: look at the products around you. See what products are available in your area, find out if those companies offer stocks, and buy them.
My argument is that a company that has been able to distribute its products effectively—to the point of reaching customers directly—is a proven company with strong fundamentals, and as a result, there are hundreds or perhaps thousands of employees who will work to ensure the company’s continued survival.
The next tip is to diversify your stock portfolio—don’t focus on buying just one stock, and don’t focus on just one sector. For example, don’t buy only banking stocks, or only stocks of companies in the mining sector. A diversified portfolio makes your portfolio stronger. And finally, whatever you do, do your own research; everything I’ve discussed here is based on my own independent research, which may not necessarily be suitable for everyone’s situation.
Also read: What should you do when sales are falling?