Investing vs Gambling

Best Way to Grow your Wealth
Warren Buffett advocates that retail investors put their money in a fund tracking the S&P 500 American stock index like $SPDR S&P 500 ETF(SPY.US)$. He made his empire by picking shares in successful companies such as $Apple(AAPL.US)$. You sometimes hear comments that investing in the stock market is like gambling in a casino. Is that true?

To the uninitiated, it can seem that way. The answer is invariably “no”. Investing is not the same as gambling. Over a long period of time, stock markets in the US, Singapore $STI ETF(ES3.SG)$ and other countries have been going up. This phenomenon has made investing in the broader stock market a fairly safe endeavor.

Managing Risk
Yes, there is risk involved. But this risk can be mitigated. Downturns such as recessions in the economy can cause the value of your portfolio to fall temporarily. However, markets have historically always recovered and provided a positive return, and thus holding your quality shares for the long term can net positive gains.

There is also the risk of individual companies and sectors performing poorly which can be reduced by carefully analysing each company you buy into. A diversified portfolio over different companies and across uncorrelated sectors helps reduce risk. 

Risk vs Gambling(The house always wins)
Gambling is flipping a coin and hoping for a 50/50 outcome. You have little control over the outcome. Gambling is zero-sum in that if you win, someone else will lose.  
There is a theory called “gambler’s ruin”. A persistent gambler with finite wealth, playing a fair game will eventually and inevitably go broke against an opponent with infinite wealth aka the house(casino). Your chance of going broke will always be more than 50%.

Time is our best tool to hedge risk. Quality stocks like $DBS Group Holdings(D05.SG)$, $Tesla(TSLA.US)$ have a significant chance to rise over time as compared to gambling to which the inverse happens; over time, statistically you will always lose as your chance of winning is never fair.