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Friday, 17 September 2010

Investing is similar to gambling?

Motivation

I read with interest an article published on Asiaone "Casino not so different to stock investment":

In the article, Kwon Oh-nam, CEO of Grand Korea Leisure, South Korea's leading foreigner-only casino was quoted as saying:

"... Some people get so obsessed with stock investment that they sit in front of the computer monitor to check Dow Jones all night long. Even if they do, some lose big money, but such cases are not criticized as much as gambling...".

src: http://news.asiaone.com/News/Latest%2BNews/Asia/Story/A1Story20100916-237501.html

This is something I totally disagree. Hey, that's not investing, that's stock speculation! And yes, to all things in life, there are plenty of opportunities to speculate, not just in stocks and casino, but in properties, commodities, currencies etc.


Stock investing vs Gambling

I've been to a casino once only, the one in Genting Highlands with my wife. We changed RM$50, yes one single $50 note, to chips and played at the "big-small" game table. Our chips are too few to warrant a seat, so we just stand around. We played till we are left with with $10 chips and en-cashed them back to cash, to 'complete' the 'process' of 'gaming' experience at Genting. I'd say the experience is thrilling and fun... at one point we almost doubled that $50 we started with and that occurred in less than 30 minutes of play. Such quick and solid returns can only occur in a gambling environment.

It is the same thing when one speculates. The 'bet' is quick and the 'returns or loss' are fast. Stock punters normally don't care whatever a company does for business (or still in business?) so long as its stock volume is huge and the price swings are there, buying and selling for potential quick profit is what they are after.

For investing, one have to study the company, read up on its past, its present and using available data, project its future...then buy, hold and wait... and the wait can last several years... no thrill, no fun to speak of. In short, its plain boring.


Its all about odds

If I define gamble as just a bet on an outcome one desires. Then all kinds of bets are merely subsets of gambling and the single factor that differentiates the groups is the odds. For investing, the odds are to the investor's advantage over the long run. For speculation, the odds are cleared staked against the punter.

For gambling at the casino, the odds are staked against the player and for stock speculation, the odds are staked against those with no insider info or those dependent on 'inaccurate tips'; but for investing, the odds of winning are higher the greater the margin of safety and a longer time horizon they are willing to wait, i.e. delayed gratification pays off.

Conclusion

Come to think of it, it is not only about the odds or what's right or what's wrong... but also knowing what one is doing. Its one thing when one knowingly gamble, but quite another when one confuse speculation with investing.

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3 Comments:

Blogger qq said...

some information from the internet http://www.investorguide.com/gambling-vs-investing

20 September 2010 at 16:49  
Blogger The Money Paradise said...

Whatever you may have views about investments in stocks but i do not see it as gambling. there are some basic fundamentals when investments are done market but gambling is purely a game of instinct.

22 October 2010 at 18:13  
Blogger Market Uncle said...

if you read carefully what I've written, I do not see investment as layman's gambling.

23 October 2010 at 15:55  

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