Isn't investing just gambling?

Question

Isn't investing just gambling?

Answer 1

It depends on what side your on. (I do credit you, this is a good question).

The Random Walk Theory states that fundamental and technical analysis is just a complete waste of time and that a stock has just as much chance of going up as well as going down. It also states that one can not 'time' the market (meaning when to get in and get out). To emphasize, it states that you could give a monkey a dart and it could beat the professionals.

On the other hand, many believe that as long as you do your homework, investing isn't gambling at all. One should mainly do their homework, find the economic moat in the company and analyze the financial data. This, I believe, is true. Warren Buffet and a countless others have made a great deal of money on stocks by buying low and selling high. However, it has been debated that Warren Buffet uses probability when choosing stocks, so this could give some weight to the Random Walk Theory.

Overall, it really depends. Life is a gamble unless you know how to handle it. Investing is gambling. However, true investing (buying low, selling high - holding for the long term etc) is not gambling but investing. Day trading is gambling. Buying stable stocks rather than looking for a future 'Microsoft' is gambling. Plus, buying stocks simply because the media has recommended them is gambling.

Books I recommend:

Intelligent Investor

Random Walk

5 tips for successful stock investing

Site I'd recommend: http://www.investopedia.com

Good Luck~

Answer 2

Investing can be risky...but risky doesn't mean necessarily mean bad.  Lets say there is a game in a casino where you flip a coin.  If you call the coin comes up as you call it, you win $1, if you call it wrong, you lose $1.  You would expect to lose $1 50% of the time, and win $1 50% of the time, so the long run expected value for each flip would be $0.  Over time, you should approximately break even, although over shorter periods of time, you could do significantly better or worse than this.  This is what is known as a zero expectation (or a breakeven expectation).  Now lets say the casino paid you $2 if you won, and only took $1 if you lost.  Now you have a positive expectation.  You are expecting to win $2 50% of the time, and lose $1 50% of the time, therefore expecting to win on average $0.50/flip.  Even though you would have a positive expectation, there would be losing streaks where you would lose money...but over long periods of time, you'd expect to make money.  On the other hand, if the house requires you to bet $2 to win $1, then you have a negative expectation.  You are now expecting to lose $2 50% of the time, and win $1 50% of the time, or expecting to lose $0.50/hand.  You can get lucky and win money at this game, but if you play it long enough, you are going to end up losing.  

A average gambler in Vegas is dealing with games with a negative expectation.  An investor is usually dealing with alternatives with a positive expectation...huge difference.  

So lets say we're an investor.  If we're offered an investment with a negative expectation, we'll turn it down.  If we're offered something with a zero expectation, we'll also turn it down.  If we're offered something with a positive expectation...we may be interested.  I say may because then we have to determine if the potential return is worth the risk we are taking.  Getting 2-1 odds on a 50/50 proposition is a pretty easy decision, but lets that we were playing the coin flip gain, and you'd get $1,001 if you won, and lose $1,000 if you lost.  It's still a positive expectation, but I don't think many people would take it.

Investments as a rule have a positive expectation.  The stock market has returned 9.5% per year on average over the last 100 years.  This is considerably better than safer bets such as bonds or bank accounts.  Over long periods of time (20 years plus), the stock market has consistently outperformed less risky alternatives.  However, like the coin flip example above, over shorter periods of time, it is possible for the stock market to lose money.  Even though the stock market yields on average 9.5%, there have been individual years where it has lost as much as 50% of its value.  Historically, losses over ten year periods are rare, and losses over twenty year periods are nonexistent.  If you play the game long enough, you will probably win.  

During my life, I've turned profits betting horses, playing poker, and trading.  In each case, success is a matter of being able to accurately gauge the odds of something happening.  If I can make a series of positive expectation bets/investments, there will be times where I hit losing streaks, but over time, the law of large numbers will take over, and I will make money.  If I make a series of negative expectation bets, I may get lucky for a while, but over time I will lose.

Answer 3

It can be, or it can't be... it depends how you do it.

If all you are doing is investing in "penny stocks", or taking "hot tips" from around the water cooler at work without doing the research for yourself, then yes it's gambling and you are bound to get burned and lose money at some point.

But if you do your own research, use technical analysis to analyze the charts, follow financial/business news closely then it's not gambling at all. Yes there is RISK but not gambling.... everything has a level of risk associated with it. If you start a business, there is a risk it won't take off, if you try to sell your house there is a risk it won't sell..... the risk-return tradeoff is what makes investing worthwhile. If you make more than you lose, then you come out ahead.

http://yarcofin.wordpress.com

Answer 4

Short answer: No.

You're buying a piece of a company, so you should of course do your homework and examine the factors that will affect the profitability of the company you're buying into.

Of course, if you pin a copy of the WSJ to a dart board and see what you hit, then yes, yes it is.

Answer 5

No, investing is not gambling.

Gambling, for the most part, is simply a game of chance where the odds are in the house's favor. You hear amazing stories of how people have won thousands of dollars on a single slot pull, but the fact remains that you aren't expected to win. You enter a casino and you hope to win big but the odds of it happening are slim to none. That's the reason why a city like Las Vegas can grow so large. After all, the town wasn't built on winners.

   Investing, on the other hand, is something in which the investor has the odds in their favor. One invests with the expectation of increasing the value of their portfolio. The reason is because the stock market has historically returned an average of 13% each year. Granted, there are risks involved and you don't always earn a positive return but, with the proper research, you can tip the odds even more in your favor.

   There are some professional gamblers who are successful but I doubt that they were successful from the very start. They probably lost money when they first started out and then learned from their mistakes in order to become as successful as they are now. But with investing, you don't have to lose money in order to invest properly. You can educate yourself before you begin by learning how investing works and then invest for the long-term.

   Investing for the short-term or daytrading can be considered gambling because it's virtually impossible to see the very near-term future of a stock, but if you educate yourself and then take a long-term perspective, there is an excellent chance that you will earn a great return on your investment.

So, Investing in stocks can be your preffered option now.With low investment, you can have higher returns.You can invest in stocks with cheapest stock broker in the world - SogoTrade.

They offers $1.50 - $3.00 online equity trades.

Fractional shares are also very popular with the broker.

Answer 6

There is no business reason to throw dice; you're only doing it to settle a bet.

There is risk in being in business.  Financial markets exist to facilitate the transfer of risk from those who have it and want to get rid of it to those who will agree to assume it for a piece of the profit.

Gambling is the creation of a risk for the purpose of making a bet.  Investing is the transfer of risk inherent in business.  Financial markets do not create or destroy risk.

Answer 7

yes but its educated gambling as opposed to card games in favor of the house.

To me anything that is not 100 percent outcome 99.9 percent of the time is gambling.