Is the Stock Market Gambling or Investing?

27 August 2008

Merriam-Webster Dictionary's definition for "invest" is : "to commit (money) in order to earn a financial return." And "to make use of for future benefits or advantages."

For the word "gamble", the dictionary defines it as "to play a game for money or property" and "to stake something on a contingency."

Although gambling shares many of the principles of good investing, and while they are alike in many ways, dealing with investments on a fluctuating market is not gambling. The reason it is not gambling is because there are predictable methods to investing and gaining in the stock market, while even the best gambler takes tremendous risk in what amounts to be a zero sum situation.

Difference

Speculation and gambling are similar, with a few important distinctions. One difference is the perception, sometimes true, that successful speculators profit due to their skill or an unseen advantage, while gamblers prosper due to chance or luck.

Remember though that it may not happen to you but in the end given enough time or chances the odds will always prevail. The casinos in Atlantic City and Las Vegas were not built with winner’s money.

Another distinction is that gambling in most forms has been illegal (at least until government got involved and changed the rules in their favor) while speculation plays an essential role in our markets and thus our economy.

A crucial difference is that when one gambles one may win in the short term but one will almost certainly lose in the long term. The only exception to this is the professional gambler playing a game such as Blackjack in which the house edge is minimal. But with stock market investing, one may lose in the short term, but one will almost certainly win in the long run. The long run may not be your run, but why bet against yourself?

If a stock starts losing market value, you can sell it and save some of your capital. You can't get out of a bet once it starts going bad.

If a stock goes up,you can sell it in about 3 seconds. You can't cash in a bet half way through the game.

Some stocks pay dividends. No wager pays you just for making a wager.

It is not as easy to manipulate stock market. Athletes can shave points at anytime.

Similarities

I can't think of much similarities between gambling in casinos and investing in the stock market but for the feeling of rush and adrenaline it creates when the market gyrates and is under extreme volatility.

In conclusion, I've read in our forum and observed various personalities and attitudes towards gambling. And it is those with these kinds of outlook that is more closer to treating stock investing as gambling:

bahala na,feel ko eh (never mind, i feel like buying it)
it is my favorite stock
and those that do not do any type of FA or TA (fundamental or technical analysis)

To know some telltale signs of a gambling addict, read on from our article not so long ago.

http://www.associatedcontent.com/article/391922/is_investing_on_the_stock_market_gambling.html?cat=3

http://www.article99.com/money-finance/wealth-building/article.php?art=11894

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