Treading a Fine Line between Investing and Gambling ?
Investing includes a partial ownership, a tangible purchase of stock in a company of tangible assets. If you own even one millionth of a company, you own one millionth of every piece of equipment it has. One millionth of the rocket they built, one millionth of the secretary’s eraser, and one millionth of their debt to asset ratio.
Increased investing, buying more shares will eventually lead to more control of your investment, as in decision-making by voting.
Gambling involves none of that.
Increased investing, buying more shares will eventually lead to more control of your investment, as in decision-making by voting.
Gambling involves none of that.
Speculative investing is different in how you approach it. It feels a lot more like gambling. It is also called short term investing. You, hopefully, do your homework and then speculate on a stock’s short term performance. You are not buying shares for the future. This type of investing is much closer to gambling, but again, differs due to ownership.
Unlike gambling, investing or trading is a game of skills which requires discipline and knowledge of fundamentals and technicals.
In gambling, where the future is dependent on a spinning wheel. In investing, you have to take care of the company’s fundamentals , financial statements, cash flows, charts of the company which helps you make wise investing decisions.
In gambling, you do not have access to facts and figures which increases the risk factor.
But when one takes a trade or invest, he is taking a decision based on the data he has at his disposal.
Both investing and gambling involve uncertainty in payoff, but there is a difference. Gambling is usually a zero sum game, where all bets are put in a pot which, in turn, is given to the winner (less the house cut), so the sum of winners and losers is zero.
Unlike gambling, investing or trading is a game of skills which requires discipline and knowledge of fundamentals and technicals.
In gambling, where the future is dependent on a spinning wheel. In investing, you have to take care of the company’s fundamentals , financial statements, cash flows, charts of the company which helps you make wise investing decisions.
In gambling, you do not have access to facts and figures which increases the risk factor.
But when one takes a trade or invest, he is taking a decision based on the data he has at his disposal.
Both investing and gambling involve uncertainty in payoff, but there is a difference. Gambling is usually a zero sum game, where all bets are put in a pot which, in turn, is given to the winner (less the house cut), so the sum of winners and losers is zero.
Investing is different in that everyone putting money into the pot will share in gains, if the pot increases in value, or share in losses, if the pot decreases in value.
Gambling is essentially a game of chance, the only skill involved is knowing the odds and acting appropriately (with the exception of poker and other such games where being deceitful is also beneficial).
Gambling is at its heart completely dependent on chance. Knowing the odds does not reduce the role of chance, but rather acknowledges its role and seeks to stay on the right side of chance. One still has to hope that the odds play out in their favor.
Investing on the other hand does require a certain amount of skill. There is skill involved in evaluating a particular business one wants to invest in. There is skill involved in understanding the current economic and political climate. There is skill involved in properly allocating a portfolio in line with your risk tolerance and objectives.
While there is “chance” involved in investing, all of these skills shall mitigate the role that chance plays in the success of a given investment strategy.
One of the key differences between investing and gambling is diversification. Investing provides you with the opportunity to spread your risk across all asset classes, whereas gamblers throw their capital into a single pot with no loss mitigation strategy.
As an investor, you can also prevent total loss of your capital by selling when you need to, or when you believe it is a sound investment decision.
In gambling, you cannot stop your losses on a bet and get part of your money back. This is because investing is based on ownership of something tangible and gambling is not.
When you are investing, you know at all times EXACTLY what you should be doing to be on track to achieving the goals you set from the very beginning.
When you gamble, you solely rely on hope and luck.
When you invest, you rely on a real plan and strategy backed by consistent action.
See the difference?
$Nasdaq Composite Index(.IXIC.US$ $S&P 500 Index(.SPX.US$ $Dow Jones Industrial Average(.DJI.US$ $Hang Seng Index(800000.HK$ $Las Vegas Sands(LVS.US$ $Wynn Resorts(WYNN.US$ $MGM Resorts International(MGM.US$ $VanEck Gaming ETF(BJK.US$ $NVIDIA(NVDA.US$ $Apple(AAPL.US$ $Tesla(TSLA.US$ $JPMorgan(JPM.US$ $Taiwan Semiconductor(TSM.US$ $AMC Entertainment(AMC.US$ $GameStop(GME.US$ $Roblox(RBLX.US$ $Microsoft(MSFT.US$ $Futu Holdings Ltd(FUTU.US$ $Alibaba(BABA.US$ $Netflix(NFLX.US$ $Bank of America(BAC.US$ $United Airlines(UAL.US$ $Goldman Sachs(GS.US$ $Procter & Gamble(PG.US$
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HuatLady : Your comparison between gambling and investing is truly well illustrated. I agree that investment definitely requires a fair amount of reading up and researching of the company's data before investors can safely buy a "winning streak". In other words, it is a bet with "hard work" and lots of wisdom combined.
KT88 : Love how you break down the concept between gambling and investing and make it easy for readers to discern between the two activities. When we treat buying of stocks as buying a business, that is truly when we can remove the ‘gambling’ mentality and the hope of increasing the odds through other unorthodox means. Huat ah!!
HuatEver : Wise of you to recognise the vast difference between gambling and investing. This is the road to success in your investments’ journey. Wish you all the Best.
HopeAlways : In general, Investing does require much more than gambling in many aspects and when done sensibly, the returns could be great.
KT88 : With the inevitable outcome of odds not being in the gamblers’ favour.. they wouldn’t even be able to feed a hamster, let only a rooster
HuatLady KT88: Haha what an appropriate comparison! I like your humour.
SyueeOP HuatLady: I am thankful for your positive outlook and support. Wish you great success and many more winning streaks ahead for your investment journey in 2022.
ProfitTogether HuatLady: Thanks. Finding a good company does involve some work and that is why I wish we all can join resources together in looking for a good stock to huat together! Cheers!
Southern Eagle :
Southern Eagle : Thank you for the very detailed write-up in relation to the distinction between Investing vs Gambling. Your illustration is so intriguing.
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