Investing in the stock market carries inherent risks. Just like gambling, it involves the risking of capital in the hope of future financial gains. Both involve speculating on an outcome that can’t be guaranteed – however, there are also some key differences to bear in mind. Let’s take a look at the similarities and differences between gambling and investing.
Falling back on a safe option
Both gambling and investing offer the chance to fall back on a safe option. For gamblers, this might be playing on slot games that have a high payback rate – though offer less than you might stand to win at a high-risk slot. In blackjack, there are certain approaches to the game – and ways of budgeting – which can make a big difference to the house edge you’re up against, and how much you walk away with.
For example, the Martingale means you double your previous stake for every losing bet you make – so if you eventually win a hand you’ll have adequately compensated for your losses. We’d recommend putting these to the test when playing American blackjack before taking the table for real. Who knows, you might even prefer the experience, as so many gamblers do.
In investing, you can also choose to take a punt on tried-and-tested shares that have been rising in value incrementally over months – as opposed to throwing all your eggs into the same basket and investing in a start-up.
Picking the right moment to strike
It’s not always about having the nerve to take big decisions – it’s about knowing precisely when to make them, too. In gambling, your chance of success rests on how aware you are that you’re onto a winner or loser, and taking your chances to up the stakes or cut your losses. In investing, it’s very clear – you simply have to buy or sell at the right time. In both cases, this is a very narrow window of opportunity, and makes all the difference to ultimate success or failure.
In gambling and investing, it’s wise to avoid ‘putting all your eggs in one basket’ and betting on multiple outcomes so you’re not too committed to one result which might not come off. Most investors tend to spread their money far and wide, dipping their toes into as many markets and industries as possible to achieve an overall gain.
Identifying patterns of behaviour
In sports betting, people gamble on the success of a player or team. Before making their bet they can take time to understandthe team or sportsperson’s form, so they’re making an educated guess at whether they’re more or less likely to win or lose. In investing, it’s much the same. An investor will study an individual’s shares meticulously – this is critical for effective decision-making.
Weighing up risk and reward is the essence of both gambling and investing. The greater the risk, the greater the chance of rewards – but also the more likely it’ll result in failure. That ability to make tough (but not reckless) calls is crucial to long-term success in either field.
Duration of the process
Investing is a life-long activity – or at least one you need to commit to for many years to enjoy success, as it gives you the chance to take advantage of the general rise of the stock market. However, gambling is essentially short term – taking place over the course of a single evening.
The economic cycle
Expansion, peak, contraction and trough are the four distinct phases of any economic cycle. Investors adjust their strategy accordingly depending on the stage of the given company or market. However, in gambling there’s no long-term process – everything hinges on the spin of a wheel or the revelation of a hand. It’s completely unrelated to any event that comes before or after.
The house always wins
Perhaps the biggest difference between investing and gambling is the concept of ‘the house always wins’. In investing, you’re betting on the course of the global economy. There are no forces working against you, it’s simply about whether you’re able to predict the rises and falls of companies and industries. In gambling, the casino is there to prevent you from winning. The house edge may vary between games, but ultimately it always wins – otherwise casinos wouldn’t exist.
Cutting your losses
In investing, there are a few things investors can do to stop their losses. If their stock falls, they can sell it off. However, if a gambler finds themselves on a downward curve, the chances are they’re going to lose everything.
Having said that, you could see investing as a whole lot more unpredictable – as it’s subject to outside influences. For example, after the attacks of 9/11 in 2001, stocks fell to a three-year low. However, the odds in gambling never change, which means they’re by some measures less volatile than investing.
Investing and gambling have two very different goals and it is these goals that separate them. There are similarities between the two, but fundamentally they are different from each other. Gambling carries much more risk than investing and serves to boost the profits of the casino owner or the player.
Investing, on the other hand, arguably provides much more benefit to society. Of course, owners and investors still stand to make profit, but through their actions, local, national and worldwide economies can prosper.