| 'Investment' vs. 'Gambling'?
Posted: 9/15/2008 7:24:33 PM | The other thread about buying stocks put another question into my head...
What is the real distinction between 'investment' and 'gambling'?
Now... I know that when you buy stock in a company you are supposedly part owner in that company... that each share represents a portion of that company's 'value'... it's equipment, holdings, money... whatever.
I'm assuming I'm not incorrect on that, but that there are variations depending on the stock.
When you 'bet' on a horse you don't, in any supposition, own a part of that horse.
But... I also know that you can't just walk in and trade in your stock for one of the company's assests... like a computer or a desk or a company car. Owning the stock doesn't get you keys to the front door or even much of a say-so in how the company is run.
Unless you own a lot of stock in the company you're not necessarily of any real significance to the day-to-day operations.
If the company goes bankrupt SOME of the stockholders MIGHT get some money from the liquidation of the company assets... after the company creditors are payed off... but I'm guessing this won't satisfy them that they got their 'investment' back.
A lot of shareholders won't own the right kind of stock... or enough of it... to really see any of that.
So...
In most all the ways I look at it, most 'investors' (especially the 'day trader' variety) are no different than gamblers...
not the kind that sit in front of slot machines (they're just sad)... but maybe the type who bet on sports or horse racing... they have information, do the research, and bet their money on a profitable outcome.
Not that 'gambling' is somehow evil or wrong... but it doesn't have the same honorable reputation as 'investing' does...
The main argument I'd imagine is that an 'investment' equates to a kind of ownership... and that you are helping to fund a business.
But if that 'ownership' doesn't really give you much of any rights toward the company you invest in...
and if, as discussed in another thread, the money you 'invest' when you buy a stock from a broker doesn't go to the company (the company having made it's one time profit off that stock when it was first issued)... I'm not sure I see how 'investing' is inherently different than 'gambling'... and so... again... what is the REAL difference.
I do know that some 'investors' are very well informed and the odds of them seeing a profit are greatly increased because of their research... but I live in Vegas and I can show you rooms full of guys who bet on sports/ponies who put in a lot of research too and narrow the odds as well. Both groups are putting their money behind suppositions and educated guesses... both groups can make a profit or lose their shirts because of unforseen circumstances.
Sometimes when I watch the nightly news, and I see the economy's welfare linked so strongly to how the stock market is doing... I'm tempted to think that it's like the economy is riding on the fluctuations of a huge sports-book.
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| 'Investment' vs. 'Gambling'?
Posted: 9/15/2008 8:11:16 PM | If you know what you're doing it's "investing."
If you don't know what you're doing it's "gambling."
It's actually more like a sports-book held by a bunch of Nervous Nellies. | |
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| 'Investment' vs. 'Gambling'?
Posted: 9/15/2008 10:07:04 PM | its not a gamble if you buy the right stock
who thinks coke or pepsi will go under? | |
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kay_el
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Joined: 12/19/2007
Msg: 4 | |
| 'Investment' vs. 'Gambling'?
Posted: 9/15/2008 11:43:09 PM | | thats why most people who invest choose a portfolio, made up of many different companies, that way if one goes under you're not screwed .If you choose to invest money in one company you are essentially gambling, that's why they sayb starting your own company can be a gamble, it is unknown. | |
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| 'Investment' vs. 'Gambling'?
Posted: 9/16/2008 12:26:51 AM |  I like Beaugrand's answer!
The difference may be more like choosing to walk on the sidewalk or down the middle of the road. One is a lot riskier than the other, but the sidewalk doesn't guarantee anything.
In a horse race, there's only one winner. Maybe a couple of other payouts, but most are going to lose you money. Add to that, the favorite pays off least. The purpose of gambling is to make money for someone else. The 'investment' is worthless after the race. You don't get a second chance to win in another race. The total payout (dividend) is less than the total investment. So, if you bet on all the horses, you lose money.
The stock market has a lot more winners than losers. You get to keep your 'investment' for as long as you want and it's usually always worth something, so you can sell it. Anyway, you can wait to sell it at a good price, rather than toss it out when the race is over.
Historically, if you invest in all the stocks, you will come out a winner. This is why many investment consultants suggest diversifying. The favorites generally pay out as much as every other stock.
Sure, you can 'gamble' in the stock market. But there are pretty well tried and tested ways to avoid losing money. Patience is one. If you look at the stock market indices throughout the 1920's, they shot up uncharacteristically about 4-fold in about 5 years, between 1924 and 1929, dropped to about 10% of their peak levels (about half of their pre-bubble level) in 1929 and were back up to their pre-bubble level by 1934. By 1944 they were double the pre-bubble level. All you had to do was not get sucked in by the bubble and wait to get a 3.5% return on your investment through the very worst period in stock market history. Try that on a horse!
BTW, a link to the historical DJIA is http://www.wrenresearch.com.au/downloads/files/mdowj.csv | |
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| 'Investment' vs. 'Gambling'?
Posted: 9/16/2008 3:30:16 AM | When I put money into something that I have not just a reasonable expectation of profiting from, but a likely (more than even) expectation, I call that investing. Even more so if I have control over the outcome. (NOTE: I don't consider breaking even to constitute profiting) For instance, I invest in my business. If I spend X dollars in marketing, then I know I can expect between X and XX% of return. If I invest $xxxx into a venture and I see a constant 80-100% of that original amount in return each and every year for 10 years - I call that investing.
When I put money into something that I have no real control over - and who does in the stock market? - even though I have a strong suspicion that I MAY profit, but no certainty that I WILL profit...I call that SPECULATING.
There are lots of speculators out there. While it's true that for certain kinds of stocks (certain mutual fund families for instance) have a historic record of returns - and it's been hovering around 10% over the past 75 or so years now... There is no guarantee that this trend will continue. Nor is there any guarantee you make a dime during the time you own it.
You may see a 25% return. Or you may see a 15% loss. You may see nothing but accruing service fee receipts (a net loss even if the fund price remains the same).
The year you invest could be the start of 20 years of "negative returns" and every dollar you put in will come back even smaller.
Some financial counselors call this "investing". I still call it "speculating" (gambling).
Placing your money into a high-yield CD that guarantees you a positive return is "investing". I only "invest" in sure things. Everything else is just speculation.
Guy goes into a stock broker's office and says he has money to in-vest.
Stock broker looks him in the eye and says, "I'll make you a promise. I'm going to take your money...I'm going to DOUBLE it, then IN-VEST it!".
Guy lays his ten $100 bills on the desk. The broker picks up the stack, folds it in half and sticks it in his vest pocket. | |
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| 'Investment' vs. 'Gambling'?
Posted: 9/16/2008 6:06:56 AM | For me, investing is simply long term (meaning years and decades).
Gambling is short term. You go in to make a quick buck without an eye to the future and then you get out. | |
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| 'Investment' vs. 'Gambling'?
Posted: 9/16/2008 6:57:14 AM |
When you win, it was an investment.
When you lose, it was a gamble. You can lose when you invest, which many people are doing right now.
You can win if you gamble - if right now you buy stocks which, you bet, will go up later. Then you win short term....alot
I'd agree about long vs short term definitions.
Because even if people gamble, they kinda know what they are doing.....only the chances are 50/50. When they invest, they know about as much as with gambling, but because of long term, they mostlikely will have some ++.
However, if you count in inflation etc mostlikely you would win on short term actions...but it's more hassle.
The key to win: you have to buy and sell at the right time, but you better know when you expect to sell your assets in the order not to lose | |
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| 'Investment' vs. 'Gambling'?
Posted: 9/16/2008 8:25:31 AM |
Placing your money into a high-yield CD that guarantees you a positive return is "investing". I only "invest" in sure things. Everything else is just speculation. Yes, I was thinking about this - with special refernce to banking. And came to the conclusion that a bank account is more of a gamble than the stock market. Banks fail - precisely because of the situation that is emerging right now. And when banks fail, there is no way of ensuring you get your money back - even on a CD. Sure, the FDIC insures around $100,000 but that ain't much these days.
With that said, there doesn't seem to be too much of a 'sure thing' if you want to look on the truly pessimistic side. House prices fall, banks fail, gold earns no interest and is ultimately just a perceived value. Would a starving person prefer gold or bread? | |
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| 'Investment' vs. 'Gambling'?
Posted: 9/16/2008 8:45:40 AM | | The first guys(bearegard) answer is correct. I am a begining investor and thestock market is far more complicated and requires far more time, effort, expertise, than most people imagine. People that don't know what they are doing will lose their money. And DON"T trust brokers most will lose your money. If you want to learn about investing start reading William O'neals books, go to investors.com,and that will get you started on many hours of time and effort reqired. | |
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| 'Investment' vs. 'Gambling'?
Posted: 9/16/2008 10:59:05 AM | I like living in Canada... banks don't fail here - It means everyone and their dog doesn't run a bank... but our banks are here for the long haul.
I believe everything you have in the bank up to 100K is insured by the government as well | |
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| 'Investment' vs. 'Gambling'?
Posted: 9/16/2008 12:06:03 PM | ...Sure, the FDIC insures around $100,000 but that ain't much these days.
With that said, there doesn't seem to be too much of a 'sure thing' if you want to look on the truly pessimistic side. House prices fall, banks fail, gold earns no interest and is ultimately just a perceived value. Would a starving person prefer gold or bread?
And this I view as the result of 25 years of plain bad overall "investment strategy", bad financial "advice" and a spendthrift attitude. We collectively spent far too much on getting what we wanted in the short-term rather than what we needed for the long-term.
As a nation and as individuals, we abandoned real investment long ago, for what amounts to gambling for profit. There was no provision made for a floor with a safety net.
Even 6-12 months ago I was still seeing so-called investment advisors telling people they should NEVER let equity sit in their home. They should refinance to get it out and throw it out there into the world of speculation,or buy whatever their hearts desired. Woe be to those who took such foolish advice as gospel. You never unnecessarily encumber the house you live in.
Now we're going to find out what the consequences of that lack of wisdom are.
A couple of folks mentioned lack of regulation as a root cause,with nobody at the wheel. I wholeheartedly agree. Banking, transportation, communications - everything we've deregulated was then populated with speculators who forced each industry to adopt these flawed "strategies" with uniformly disastrous results.
The gambling continues today: People poured money into stocks anticipating a Fed rate cut. The market broke through zero to positive territory. Some people lost money, others made money. About a half hour ago the Fed announced it would not lower rates. The market flopped again and more people lost money while others made a few bucks, at least on paper. At this moment it remains mixed.
We've adopted the stock market as the primary indicator of our economy when it's truly just the indicator of how speculators feel at the moment. We've forgotten or abandoned all the fundamentals of a strong economy until there are no fundamentals left to buoy it up. | |
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| 'Investment' vs. 'Gambling'?
Posted: 9/16/2008 1:20:32 PM | Thanks Wantasmart1, that's a good summary of what I've been assuming about Wall Street lately.
I'm not confident I'm accurate in that belief but I really think that it's at least part of the truth.
A lot of my opinions formed while I was reading Dough Henwood's book 'Wall Street'
http://www.wallstreetthebook.com/
I guess that, when I was growing up, it seemed like the economy and the stock market were known quantities... nearly scientific in the certainty of how things worked... how predictable outcomes came from quantifiable stimuli.
Now it seems as if they just as much a matter of opinion as sports or politics... superstition and prejudice mixed with a small amount of actual science/knowledge. | |
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| 'Investment' vs. 'Gambling'?
Posted: 9/16/2008 7:28:00 PM | {quote]its not a gamble if you buy the right stock
who thinks coke or pepsi will go under?
Hmmm, I think they are having a harder and harder time. The additives in the formula leach calcium from your bones, the high sugar destroys both your teeth and your kidneys and contribute to diabetes. If you have to choose between gas, food, and housing or buying a coke, what will you choose? I guess maybe you have more money than I do. I have pretty much stopped altogether. If I had money to invest (gamble) I would want to go with the renewable energy field - NOT ETHANOL!! - Solar, hydro, wind, geothermal.
Farming was the original investing. You put your seed in the ground, stepped back, hoped you weren't wiped out by hail, early snow fall, or drought and at the end of the year you got enough seed to plant another crop next year plus the extra to sell on the market for profit, and some years were better than others. Then the government stepped in to regulate farming - "take the gamble out," with insurance and funding for following government programs, look at farming today. | |
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| 'Investment' vs. 'Gambling'?
Posted: 9/17/2008 6:40:14 PM |
I like living in Canada... banks don't fail here don't jingle my best friend lives in Canada...everything can fail..........nothing lasts forever | |
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