Is Investing Gambling?

Quite often when I talk to people about investing, they say things like when you want to invest just put a little bit in it and forget about it because you could lose it. Some say invest only what you can lose because they have the mentality that investing is like gambling.

They’re sort of thinking the stock market is like walking into a Casino in Las Vegas, throwing some money down and rolling dice and just hoping for the best. While that could be very true for speculative investments or some kinds of Cryptocurrency or other kinds of investments; that is not the case for the stock market and those that have a long-term strategy in the stock market.

Let’s compare Gambling to Investing using the following four criteria:

1. Strategy.

2. Risk.

3. The history.

4. The Outcome

1. STRATEGY

When you think of gambling you are going in there speculatively, you’re just trying something, you are depending on luck to see maybe something could work, and even if you have a bit of knowledge, you are not in control of the situation. You have very little control over the outcome of your gambling, and your strategy is just luck. Pretty much, that’s it. It’s luck or you pay somebody to do something for you which is bribery.

On the contrary, when it comes to investing you can have a very defined strategy. There are thousands of strategies you can have; it can be a long-term investment where your dollar cost averages every month trusting the market is going to continue its upward trend. You could also try a short-term strategy of shorting the market in case of a downturn. You could invest in individual stocks, ETFs or Indexes or you could invest in various other different avenues.

It’s advisable to have a defined strategy that has sufficient evidence behind it rather than simply rolling the dice and hoping for the best. Millions of individuals and thousands of investment funds invest in the stock market. There’s a reason behind why people are willing to bet big on the market, it is because they can have a proven strategy. They know their strategy and they’ve tested it to know it can work.

2. RISK

When it comes to risk, Gambling is very risky. Once you’ve paid to play, there is no guarantee that you’re going to make any money. If you make some money, you’re lucky, if not; that’s normal. Quite often, the only guarantee is that you are going to lose money. However, it’s not the same with investing, with investing, you can control your risk by investing in what you know, and your knowledge of the stock market can reduce your risks.

There are lots of things you can do in the stock market to reduce your risks. For example, investing in an index fund that gives you exposure to the entire stock market. If a company goes bankrupt in the entire fund, you are fine. If there is a crash, you know it’s going to recover because the market trends up over time as companies produce profits. Therefore risk-wise, you are safe. The reward is going to come because the market trends up over time.

3. THE HISTORY

Can you analyse the history of Gambling and utilise it to help you to make predictive bets? If that was commonly possible, then everyone would be doing it.

Whereas, in the Stock Market, you could look at about a hundred years of history to assess that the market trends up over time. You know even when there’s a crisis or when there’s some volatility in the market, from your analysis you’ll know that the market trends up over time.

From the history of different companies like Tesla, you can look at where they started from; their various Stock numbers or their Price-earnings ratio (the P/ E ratio) and the total expense ratio that’s for funds or Index funds of ETFs. You could also look at other aspects like the Earnings per Share (EPS)of a company, their books or financial reports, everything about a company even its history since the company has been in existence and uses all of these to decide as to whether you want to invest in that company.

However, this cannot be done for Gambling. You go in there and you are just hoping for the best. There is no history to guide your gambling. None. There is no history to guide your decision making in the Casino.

4. THE OUTCOME

In the Casino, you cannot predict the outcome, you have no idea what’s going to happen, and that’s why you depend on luck. Luck and hope are your strategies; that is a very terrible strategy. Statistically, about 70% of people that have won lots of money from the Lottery or Gambling, go bankrupt within the decade. You can’t be certain of the outcome of your gambling bets.

On another hand, the stock market can be quite predictable depending on what you invest in. Predictability ranges from highly predictable investing options such as Government bonds to unpredictable options such as penny stocks or IPOs.

If you look at the Stock market, you have to understand that it is not the same as Gambling.

Gambling, is speculative, the risk is very high, there is no history that you can use to determine what strategy or what move you are going to make and the outcome is highly unpredictable. I’m willing to predict that your chances of losing money are much higher than your chances of making money.

However, in the Stock market, you can have a well thought out strategy such as a long-term strategy, where you invest every month, dollar cost averaging and that is it. When you invest in the stock market, companies are working every day to increase their Profit to return value to you as a Shareholder.

Furthermore, when you Gamble you own nothing but in the Stock market when you invest you own a piece of a company or a piece of thousands of companies depending on what your investment strategy is. So, ownership is another major difference between Gambling and Investing’

I would like to encourage you all today, don’t make the mistake to think that Investing and Gambling are the same things, don’t buy into that lie. It is possible to say that for maybe something like Cryptocurrency, you can’t predict the outcome of Crypto projects. They can come and go in a short time; they can go boom or bust in a very short time and lots of them have been Scams. But don’t have that mindset when it comes to investing.

In summary, these are the biggest differences between the stock market and Gambling. Don’t mistake either of them, because if you do it would hold you back from benefiting from the stock market. I always say that the stock market is the greatest wealth-building tool that has ever been created and it does not discriminate. Anyone can partake in it; you can buy a piece of the entire market every month and you would retire a millionaire or at least you retire much wealthier than you are today.

I would like to encourage you to take your first steps to begin to invest and if you don’t know how to do that then contact us, we would love to show you.