Recently, many people have been discussing how to make money through stocks, but the logic behind this topic is actually more complex than most think. In an era of inflation, savings account interest rates are almost negligible, making investing an essential skill. But to truly understand the principles of making money in stocks, you need to first clarify the different paths.

I notice that many beginners only know "buy low, sell high," but there are far more ways to profit from stocks. Holding stocks to receive dividends, trading for capital gains, lending stocks to earn borrowing fees—these three methods each have their own logic.

First, let's talk about dividends. When you buy stocks, you become a shareholder and have the right to share in the company's profits. Some companies, like Buffett's Berkshire Hathaway, reinvest their earnings to boost stock prices; others, like Coca-Cola, directly distribute profits to shareholders; some even issue stock dividends, increasing your share count each year. Holding stable dividend-paying companies long-term allows you to enjoy both stock appreciation and cash income—sounds good. But there's a trap—on the dividend payout day, the stock price drops by the same amount, so your book value doesn't actually increase. Only if the stock price later recovers to "fill the gap" do you realize a true profit. Be wary of "fake dividends"—some companies distribute earnings exceeding 100%, effectively eating into their capital. A stark example is HTC, which paid a cash dividend of NT$40 in 2011, but the next year, profits plummeted, and the stock price crashed from NT$1,300 to NT$200.

Trading for capital gains is more straightforward. Stock prices change every moment; you can profit by buying low and selling high or selling high and buying low. Price fluctuations depend on company performance, market sentiment, circulating shares, and other factors. Usually, we predict trends through fundamental analysis, news, and technical analysis, but honestly, even professional fund managers find it difficult to predict accurately. Over 80% of U.S. fund managers fail to beat the market index over ten years.

Another passive income method is lending stocks. If you plan to hold a stock long-term and don't mind short-term fluctuations, you can lend your stocks to those who want to short, earning borrowing fees in addition to dividends and capital gains. The cost is losing some operational flexibility—if you want to sell during trading hours, you need to recall your stocks first. Short-term traders are not suitable for this.

Now, here’s the key question: why does it seem clear that stocks can make money, yet it’s so hard to do so in practice? Because markets are full of variables—company operations, industry development, social events, political fluctuations, supply and demand, and countless other factors. Most importantly, investor psychology also plays a role. When buying, you hope prices go up; when selling, you worry about falling prices. No one can accurately predict the future.

According to data from the Taiwan Stock Exchange, over the past three years, retail investors have an average loss of 15.7%, but those who invest regularly in the ETF 0050 for more than five years have a profit rate of up to 82%. This demonstrates the advantage of long-term investing. As long as a company continues to operate, it can generate profits—unless it goes bankrupt or the industry declines. Long-term investors can avoid individual company risks, and investing in the broader market index is more stable. The market mechanism will naturally weed out the weak and support the strong—you don’t need to predict which company will be the strongest in ten years, just that the largest companies by market cap will surpass today’s.

In contrast, short-term trading often results in higher losses. Frequent buying and selling incur high transaction fees and taxes, and most people have a common flaw: taking quick profits when they gain, but holding on to losses in hopes of a turnaround, often resulting in small gains and large losses.

To truly make money in the stock market, you first need to understand yourself. Everyone’s cash flow and investment horizon are different, and no single strategy suits all. Office workers or retirees with limited risk tolerance and no time to monitor the market should focus on dividend stocks or broad market ETFs. Those with time to watch the market can position themselves before earnings reports or major events.

Conservative investors can pursue value investing—finding undervalued good companies to hold long-term, then selling when the price returns to its intrinsic value. Alternatively, they can use dollar-cost averaging to plan for long-term goals like retirement or education funds, regularly buying index ETFs or stocks of competitive companies. The average purchase price over the investment period reflects the true cost; as long as the market grows long-term, assets will naturally appreciate steadily.

Higher risk-tolerant investors might try swing trading—capitalizing on significant stock price swings at specific times, such as seasonal travel stocks or online shopping stocks during Double 11. This requires paying attention to real-time news, researching companies, and is more suitable for those who can monitor the market actively. Day trading demands technical skills—buying and selling within the same day without overnight positions—requiring integration of news and technical analysis. Both long and short positions are possible, but precision in identifying support and resistance levels is crucial.

People often ask, are there many people making money from stocks? Online, you do see many sharing success stories, but few post their losses—this is survivor bias. Making money has never been easy. Long-term investing indeed has a higher success rate because the market mechanism favors the strong. But if you engage in short-term, frequent trading, your probability of losing increases significantly.

The core principle of making money in stocks is: avoid emotional trading, combine fundamental, technical, and market sentiment analysis to make rational decisions, strictly control your position sizes, set pre-defined loss limits, and clarify your profit targets and investment horizon for each trade. The most important thing is to have a clear understanding of yourself, choose strategies that fit your personality, and only then can you consistently profit from the stock market.