Is the stock market gambling? Should people consider trading in the stock market to be a form of gambling? The answers to these questions are an unequivocal – No! Investing in the stock market is not gambling, and novice investors should not think of it in that way.
Equating the stock market to gambling is a myth that people on the internet and television pundits have perpetuated for years. And, it’s simply not true. Free online slots south africa.
While investing and gambling have a few similar characteristics, they are very much different. And, if an investor does not take trading stocks or buying shares of mutual funds seriously and equates it to gambling, they are in serious jeopardy of losing money or missing out on gains from the stock market that they need for retirement.
Why Stock Trading Is Not Gambling
When I talk about investing, I’m mainly discussing investing in public equities through the stock market. What investing has over online casinos and gambling is that over the long run, the market rate of return for the stock market is 8%. The stock was valued at a split-adjusted price of around $12 a share. You decided to invest $10,000, and purchased 832 shares. Today, that $10,000 investment is worth more than $80,000, or an annual rate of return of just under 70%. However, let’s say you decided to buy into Netflix a bit earlier in July 2011.
Dec 12, 2017 Are You Investing or Gambling in the Stock Market? There are big differences between the two, but investors can't always tell them apart.
Is Investing In Stocks Gambling
Stock Is Ownership
Investors must remember that they are purchasing ownership in a company when they buy shares of common stock. Investors own a very small portion of the company. That’s why I love buying cans of Dr. Pepper. It feels like more money is ultimately going back into my pocket with every sip.
Buying shares of a company is the equivalent to having a claim on the assets, debts, and more importantly a small fraction of the profits of the company whose shares you buy. Far too often, investors look at buying shares of a company simply as trading stocks. They forget that they are now owners of the company too.
To gain an advantage and earn a profit on your stock trading, investors must try to gauge the company and its profitability. Incorrectly gauging profitability in the short and, more importantly, over the long term is why stock prices fluctuate on the stock exchanges. The profit outlook for business is always changing, and investors are using stock charts, news, rumors, company metrics, and fundamental analysis to estimate the future earnings of a company and subsequently the value of its stock in the future.
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The Value of a Company
Trying to determine the value of a company’s stock price and where it’s going in the future isn’t easy. There are a lot of different variables that move the short-term price of a company’s stock. They often appear to be random, but they’re not really.
Over the long term, a company’s stock is the present value of all profits that the company will make. In the short term, a company’s share price is a lot more volatile. A company can trade shares even without profits because investors think that the company will have future earnings. But, eventually, a company’s stock price will show the true value of the company.
Similarities in Investing and Gambling Strategies
Studying Behavior
Investors and gamblers study odds and look for an edge to enhance their performance. With gambling, especially games like blackjack and poker, players study behavior. They look at the mannerisms and patterns of their opponents. This helps them gain useful information to influence their betting and strategy.
Investors study trading patterns through stock charts to predict a stock’s price the in the future. Investors have a distinct advantage with gaining information. Company information is readily available on the internet and through company filings with the Security and Exchange Commission (SEC). Investors can find a wealth of information in the SEC’s Edgar database on company stock filings.
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In the Edgar database and company filings, you can find out the types of assets that companies hold and if they are a holding company that other firms underneath its umbrella. For example, 888casino.com is a well-known online casino brand of 888holdingsplc.com. It has many other brands such as 888.com, 777.com, 888poker.com, 888sport.com etc. And, 888holdings Plc actually has shares of stock that trade on the London stock exchange. (symbol 888). So, imagine you invest in the 888holdings share and also play online at their 888casino, that will make you an investor and a gambler at the same time.
Risk
Both investing and gambling involve risk. You have to risk capital in order to gain value in both the stock market and a casino. It is the risk that investors and gamblers take on that gives them the right to earn more than they wagered.
Both investors and gamblers must know how much risk they can tolerate, though. Every investor and gambler have a certain risk tolerance that they are willing to lose. You must know your risk tolerance before you start investing or gambling. Not knowing when to stop or sell will make you vulnerable to potentially losing more than you intended.
Differences in Investing Strategies and Gambling
Zero Sum Game
Unlike investing where there are moderate winners and even some losers over the long and short term, gambling is a zero-sum game. There has to be a winner and a loser with gambling. Gambling takes money from a loser and gives the same money over to a winner every time.
In investing, there can be varying degrees of winners and losers. There can be total losers or total winners, but because investors buy and sell instead of waiting for a gambling hand to be completely over, they can have partial winners and partial losers.
But, with gambling, no value is ever created. The value or money wagered is simply transferred from one gambler to another. Investing increases the overall wealth of the economy. With investing, companies increase their productivity and develop new products that improve people’s lives. Companies create profits and share those profits through dividends to investors. Investing creates wealth over the very long-term for investors and is not the same as gambling’s zero-sum game.
Limits to Investing Losses
Investors can often limit their losses and get out of a trade if they start to lose money. Stock investors can establish a trading order called a stop loss with their broker or online brokerage firm to limit their losses. I often immediate place a stop loss order after purchasing shares 10% lower than my purchase price on the off chance that the company is hit by a selling frenzy before I can get in to sell my shares.
Sometimes, I’ll place a similar limit order when I’m swing trading to sell shares at my target upside price as well to lock in my target profit margin. Many times I’m looking for a 10% raise in a stock when I’m swing trading, and I routinely place limit orders as soon as I buy a stock.
With a stop loss order placed, I will only lose 10% if a stock drops in value below what I purchased it for. This helps me sell the stock to someone else and retain 90% of my capital, limited my downside risk.
Time Horizons for Trading and Gambling
Time horizons are another difference between investing and gambling. They are different than gambling even if you’re day trading, swing trading, or simply buying and holding your investments. Most gambling is a time-based event that has a set end time or date where you find out whether you’ve won or lost your bet. Investing can continue indefinitely in some cases.
Many companies pay dividends to investors and reward them for purchased shares for years. You can lose money on paper as your investment value declines, but dividend paying stocks will continue to pay you typically each quarter to wait for a rebound. With gambling, you either have to win or lose the money that you bet. There is no middle ground.
Limited Information
Unlike investing, there is only a limited amount of information while you are gambling. You may be able to pick up a few signals from the table or hear a few grumbles from your fellow blackjack players at a casino on whether or not the table is hot or cold. But, that’s about all of the information that you’ll get.
Investing is completely different. There is a plethora of information about the companies you invest in through online forums, stock analysts’ reports, conference calls, company filings, and the like. While gamblers are almost blind to any inside information that can help them get an edge on their competition.
Gambling and investing have a lot of similarities. But, they are also very different. Investing in the stock market is not gambling.
Equating the stock market to gambling is a myth that is simply not true. Both involve risk and each look to maximize profit, but investing is not gambling. And, gambling is not investing. Each play a unique role in our society, but investors should not confuse where the similarities end and make each one unique from the other.
What do you think? Is the stock market gambling? Do you consider trading in the stock market to be a form of gambling? Why? I’d love to hear your thoughts in the comment section below.
Stock Market Investing Pdf
Several times in my short career as an economics professor, I have had someone tell me that investing in the stock market is morally questionable because 'it's like gambling.' Certainly the unusual volatility we have seen in the stock market over the last several years has, like a lottery, enriched some and impoverished others. But is buying a share of stock like buying a lottery ticket?
Gambling and stock market investing both involve risk-taking, but this does not equate the two. Taking risk is inherent to diligent and productive work (Proverbs 22:13; Ecclesiastes 11:4). Gambling is consumption — it is done for the entertainment value of taking a risk. Stock market investing contributes to production — it is the taking on of risk as part of providing a valuable service. Because gambling is consumption, a gambler can expect to lose money, on average. An investor in the stock market can expect a considerable return, on average.
The Problem with Gambling
Gambling, reduced to its essence, is the exchange of a dollar for an expected return of somewhat less than a dollar, sometimes accompanied by blinking lights and spinning wheels. Now, we cannot say that gambling is wrong because it is entertaining, nor can we say that it is wrong because it is risky. We cannot even say that it is wrong because the gambler is likely to wind up poorer, for there are plenty of legitimate activities that cost money. A gambler is engaged in morally questionable activity because he is deriving entertainment from that which ought to have no entertainment value, like one who laughs at a car accident. A gambler takes that which is certain — a bird in the hand — and exchanges it for that which is uncertain — a less than 50-50 chance at the two in the bush. Gambling is entertainment for people who enjoy risk and uncertainty for their own sakes. The Bible encourages avoidance of risk (Ecclesiastes 11:1, 2), not reveling in it.
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Stock Market Gambling Addiction
Why Stock Prices Change
People who believe the stock market is like gambling apparently misunderstand the source of fluctuations in stock prices. What seems like random movements or the product of mass psychology actually has a rational economic explanation.
This may be difficult to believe, given the rapid changes in the value of, say, Internet stocks in the last five or six years. First they increased at a rapid pace, even for a few firms that could not show a profit. The closely watched P/E ratios — the ratio of stock price to actual earnings — began to rise to stratospheric levels. Then, as though stockholders had suddenly and simultaneously lost their trust in these firms, the prices began to fall. Had the stock price lost all connection to a rational assessment of the firm's value? Most people seemed to think so. Yet it is not necessary to appeal to irrationality or mass psychology to explain these changes. A firm's stock price is a reflection of the firm's expected ability to produce earnings. Expectations change with new information, and with new interpretations of old information. Therefore, while the actual earnings of a firm may change only gradually, new information can appear instantaneously that causes people to re-evaluate the firm's prospects.
Stocks are generally traded for two reasons. The first is that each individual's investment goals will change over time, and each person will want to change his portfolio to reflect his tolerance for risk, need for income, or liquidity. King billy casino no deposit bonus codes 2019. The second reason is that the person selling the stock has a lower view of the firm's prospects than the buyer. The seller's opinion could be based on unique information he has which the buyer does not, or it could be that the two parties to the transaction simply have formed different theories about the same information. Some have said that selling stock during a boom is a matter of finding a 'greater fool' to take the stock off one's hands in exchange for dollars, but this is a matter of perspective.
Market Speculators
Online Gambling Stocks
Speculation in the stock market — buying now in anticipation of selling at higher prices later — is valuable and completely moral. Firms that discover ways of being more productive will be recognized by stock-market speculators, and their stock prices will rise to reflect the higher market value of the firm. The firm will benefit directly because its debt will fall as a percentage of its recognized market value, making it easier for the firm to borrow more if it chooses. Later, the firm may find it easier to raise capital by selling new shares of stock, perhaps for higher prices. Because of the information provided by speculation in the stock market, firms with good ideas are recognized early and rewarded with easier access to capital. Firms with poor management or other problems are denied capital. In return for performing the valuable service of identifying more productive firms, the speculator receives compensation in the form of capital gains. Though stock traders are often denigrated as not really 'working' for their living, they are some of the most important individuals in society. Speculation, and the information it provides, are indispensable to wise stewardship of resources.
Does everyone who invests in the stock market have this ability to judge, this skill in evaluating the future prospects of firms? No, of course not. However, over time, those with poorer judgment tend to lose money and be discouraged from future investment. Those with exceptional abilities may 'rent' their skills to others for a fee — leading to a class of professional investors who handle funds for the less capable. Yet all investors have one common trait — a willingness to put off consumption and devote resources instead to that which makes the economy grow in the long run.
Is Stock Trading Gambling
As we have seen, investment in stocks provides us with valuable information — a constantly changing market assessment of the values of corporations. This should not be confused with gambling simply because of the risk involved. Instead, we should appreciate participants in this market as future-oriented contributors to long-term economic growth.
Stock Market Gambling Or Investing
Topics: Biblical Law, Business, Culture , Dominion, Economics