|One look at the dictionary will tell you that gambling and investing are, at their heart, startlingly different. But there are lots of investors who act like gamblers, particularly when it comes with risk that is related to the anticipation of profit. Let’s explore the differences and importantly, examine the need.|
According to the Oxford dictionary, a gambler is “a fraudulent gamer who routinely plays for money, particularly substantial stakes. By its very nature, gambling involves a voluntary, deliberate assumption of risk with a negative expected value.” Quite harsh!
An investor, on the other hand, is described as “a person who commits capital to a company endeavor for positive returns. Investing includes the amount of time you put in the study of a potential company, especially since time is money”
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Spreading your risk
Among the differences between gambling and investing is diversification. Investing provides the chance to spread your risk whereas their funds are thrown into a pot with no loss mitigation plan to you.
You could prevent loss of your capital by selling when you think it is a solid investment decision, or when you will need to. In gambling, your losses cannot be stopped by you and get a portion of your money back. This is because investing is based on possession of something concrete and gambling is not.
Playing the odds
In the long term, when investing with professionals, the odds are in your favor. When it comes to gaming, but the home (almost) always wins. This has a lot to do with accessibility of information — a priceless commodity for both gamblers and investors.
Investment professionals such as Prudential’s fund managers have the experience, time and analytical instruments to collect histories of local and overseas investments and they use this information — combined with the irresistible power of diversification in their unit trust funds — to improve your chances of winning in the long term.
If you sit down for a game of blackjack at Sun City, you don’t have any information about what happened a day, an hour or a week ago at that table. You will hear that the table is ‘cold or hot’, but that info isn’t related or measurable.
There are, of course, lots of investments in which the odds can be against you, including the purchase of futures and options (best left to the professionals) and regular trading (which may include trading fees). In the same way, gamblers can win, because their competition could be other players (whose playing style and mannerisms they know) instead of the home. After its share has been taken by the house, it could not care.
In it for the long haul
Another key differentiator between gambling and investing has to do with time. With gambling, your opportunity to profit ends whenever the game is finished, while with investing there is the chance of a future revenue stream concerning interest and dividends and there is the alluring prospect of capital growth and compounding returns over time.
Not so fast: There are similarities also
The similarity between gambling and investing is the assumption. Traders like Prudential conduct analysis to ascertain if they will
receive the reimbursement for the amount of risk whereas danger that they cannot afford is often taken on by gamblers.
This leads us to the subject. It’s all too easy to buy stocks or unit trust funds on the internet with the objective of selling them at a couple of days for profit. You may have a few wins if you opt for this route, but to the yield from capital and income growth they won’t compare in the future that investment attracts.
The good, the bad and the ugly
It would be tough to argue that investing isn’t a good thing, as it benefits the market and investors. Growth is driven by it and puts funds in the hands of those with the uses for it. Plus it can help your dreams come true by providing a strategy to cultivate your wealth.
Gambling, on the other hand, adds nothing to international economics (besides the statutory contributions gambling organizations will need to make to non-profit institutions). What is more, it can be harmful and addictive to your ability to lead a life that is successful. While gamblers anonymous are flourishing, it is no coincidence that there is no support group for investors.
A word of warning
It’s crucial for all of us to realize how simple it is to gamble under the pretext of investing. The world wide web has made investing accessible, but the fundamental tenets of time on the marketplace and risk versus reward, diversification are as important as it has ever been. Unless you are prepared to spend effort and the time that investing requires, you will probably be better off spending your time developing your skill set that you do not know about. As John Maynard Keynes, the grandfather of modern economics stated, “It is usually agreed that casinos should, in the public interest, be inaccessible and expensive. And maybe the same is true of stock exchanges.”