Investing is NOT Gambling

Investing is NOT Gambling

People like to joke all the time that investing is like gambling.  I get what they mean, as it seems like a crap shoot to the untrained eye.  Go to the casino to play blackjack or roulette, and you figure there is a close to 50/50 chance you win money vs lose money.  People equate that, justifiably, to investing in the stock market, where they presume your money has a 50% chance of going up or down (ie, another form of gambling).

Win or Lose

There are other similarities to the untrained eye as well.  Both involve money and a chance to win or “lose.”  Additionally, if you are simply a day trader and buying stocks on a very short-term basis, well then, it certainly can be gambling.  That said, let me attempt to dispel the myth that investing in the stock market is not and should not be “gambling.”

For starters, when you gamble at the casinos, there are a few undisputable facts.  Most importantly, the “house” always wins.  Meaning the odds at the casino favor the casino.  There isn’t any game where you play against the casino where they don’t have the mathematical odds to win.  Said differently, you may get lucky at the casino, but the longer and more you play, your odds will revert to their mathematical probabilities.  There is a reason these casinos are massive structures making billions of dollars every year (hint, it isn’t their stellar all-you-can-eat buffet).

Comparisons

If we take a moment to compare that to stock market investing, here are some fun statistics over the past 40 years.  On average, the stock market is up only 53% of the days.  I know what you are thinking, Andrew sounds much like gambling.  Monthly, however, the stock market is up on average 63% of the time, getting better, right?  On an annual basis, the stock market is up 78% of the time, starting to sound different than gambling, don’t you think?  If we look at rolling periods of time over 3 years, the markets are up 84% of the time, and if you look at it over 10 years, we are talking 92% of the time. 

If we compare these two situations, you can see the difference in that gambling, the odds are against you, and in investing, the odds are with you.  In a way, when you flip into investing, you become the house, and this is an enormous distinction.  You know who has the most money in our country?  Investors!  You know who is begging for change on the strip of Las Vegas?  Gamblers!  Don’t believe me, how do you think Elon Musk, Bill Gates, Warren Buffett, and the list goes on became so wealthy?  Yup, the stock markets. 

Now, the key to investing is just that investing vs gambling is a few folds.  One, investing takes strategy and discipline.  I’m not suggesting we have the greatest strategy in the world, although it is pretty darn good, but the reality is, we have a strategy that takes discipline.  The people who look at investing as gambling lack any sort of strategy.  Second, the longer you invest uninterrupted, the odds tip heavily in your favor, unlike gambling.  The issue many individuals face, and I see it a lot with new investors, is that they view it as a get-rich-quick scheme (gambling mentality), which it absolutely is not.  True investing of any kind takes time, compounding, discipline, strategy, and resolve to pay off. 

The key

As you can see above, the key to successful investing is not to view it or treat it as gambling.  It may be a subtle distinction, but it is one worth repeating and hammering home.  Investing is a long game that has ups and downs.  It is one that, if done properly, can heavily tilt the odds into your favor and must be repeated with some form of plan of attack.  I’ve seen more wealth built from investing and more wealth destroyed in gambling than I can count.  The question I’ll leave you with is, which one would you prefer?

As always, stay wealthy, healthy, and happy.