Investing Vs Gambling: Are They the Same?

With gambling, there’s no scope of finding helpful guides or ready-made portfolios. Gambling is the act of betting your money on some kind of possibility or event. Since the event’s outcome is subject to chance and is usually uncertain, gambling becomes less about learned moves or skill application and more about odds.

Also, the risk quotient increases because once the event is over, winning or losing is absolute and finalised once the event is over. There are no partial losses or wins!

That’s why professional gamblers learn risk management to decide the amount of capital to gamble with at every stage. Gamblers also try to study their opponents or the game before putting in their bets to better understand the odds of a favourable return.

But beyond that, gambling and investing are very different.

Differences Between Investing and Gambling

1. Time Horizon

A vast difference between investing and gambling is the time horizon. Gambling is a limited-period, event-bound activity. The moment the event is over and its outcome is defined, the act of gambling is concluded. Sometimes, the whole gamble can end within minutes!

By comparison, investments have a much longer time horizon. So you have the option to stay invested in a particular stock or asset for years or even decades. Of course, short-term investments and intra-day trades are also possible. Still, if you follow the trading rules, your investment opportunity will rarely be limited by a single event.

1. Risk Minimisation

With both investing and gambling, you are supposed to look out for profit maximisation and risk minimisation. While you have the reins to control with investing, it’s not the case with gambling. You can always define a stop-loss strategy and sell off an investment that is not giving you expected returns.

On the other hand, when you gamble in a casino and bet against the house, your expected returns can be anywhere between -0.5% to -5%. Technically, the house always has an advantage, and the more you play, the more you are likely to lose. And your losses are absolute, which you can’t cut even by quitting midway through a gamble!

1. Need for Skill

Even though the outcome depends largely on chance, professional gambling requires experience and skill. To increase your chances of winning, you have to study your opponents and the odds long before making a bet.

Investing doesn’t depend on any particular skill set. Anyone can learn to be a profitable investor. Successful investment in the stock market requires knowledge and study of the companies and financial instruments.

1. Availability of information

Another thing that sets investing apart from gambling is the availability of information to make an informed decision. All the information that an investor seeks about a stock or asset is available in the public domain. You can find out about a stock’s historical performance and profitability projections by going through the company’s annual report.

But information is rare to come by when it comes to gambling. Even though you can know the pedigree of the horse you are betting on or the opponents you are playing poker with, the credibility and reliability of the information remain questionable.

1. Diversification

 When investing, diversification is an accepted strategy to reduce risk and maximise returns. You can invest in different asset classes and diverse opportunities within the same asset category at the same time. If one investment doesn’t perform well, the others can cover its losses.
But when gambling, diversification doesn’t protect you in any way. If you spread your risk capital across multiple gambles, you reduce your reward potential rather than mitigating your risk.  

So, in essence, investing is very different from gambling.

But What About Speculating? Is It the Same as Gambling?

Speculation in the stock market means trading high-risk financial instruments to realise substantial returns. When price movements of securities are frequent and volatile in the market, traders try to take the maximum advantage of the situation by calculative speculation.

Investing may seem like a gamble to an outsider. But those who participate in stock market trading with adequate knowledge and make it their business base their decisions on information rather than intuition!

Conclusion

Finally, in the famous words of Peter Lynch, “If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.”

Therefore, to those who continue to invest without studying the market, investing will always remain as unpredictable as gambling. But if you are in it for the long game and increase your potential for high returns, then help yourself with a beginner’s guide and learn investing for beginners.