Is Investing Like Gambling?

I l @ ve RuBoard

Investing in the stock market is not gambling. True, both do attempt to accurately predict future outcomes , but the similarities end there. The inherent fear in gambling is that the outcome is determined by something over which you have no control and understand even less ”a pair of dice for example. This is not the case in the stock market. In the stock market, investment decisions are made after a careful analysis of the available information. For example, let us say you receive a windfall of $100.

Option 1:

You don't have any real need for that money right now, and you sure wouldn't mind trying to make that money work itself up to a bigger sum. You could place a bet on the roulette wheel, in which case the fate of that $100 would depend entirely on your ability to predict random probability. Regardless of how much research you put into that prediction, the end result once the ball began to roll would be determined by nothing more than sheer chance. That's pretty risky.

Option 2:

Investing in stocks works a little differently. Once purchased, a stock represents a partnership between its issuing company and its investor. The investor has agreed to buy into the business and, in return, the issuing company has agreed to try to increase that amount by using it to improve the business. You want the company to succeed; the company wants to succeed. Where is the gamble in that?

Choosing which partnership you want is also not gambling. The research involved here is not an attempt to understand a science like random probability; it is designed to increase familiarity with the company. Think of it like a job interview. During the interviewing process, at one point or another you will be introduced around the office while you take the tour. In this way, you can decide whether this company is one for which you would feel comfortable working. In the same way, information on the issuing companies is made available so you can decide whether this is a company in which you would feel comfortable investing.

TIP

The fear that investing in the stock market is reliant on chance is proved wrong as new investors learn that the processes and tools with which they pick stocks are not based on random chance but on intelligent research and decision making.

The inherent difference between gambling and investing is ultimately control. By gambling your money, you have handed over control of it. The fate of your money rests on something over which you have no control ”the hopes that it will manage your money better than you through the magic of probability. By investing, you are charged with the responsibility of learning which stock will best manage your money in a manner consistent with your stated preference. You directly control the company with your vote, and you can revoke your partnership at any time. Because you are appropriately informed, the decisions are not left to chance.

I l @ ve RuBoard