Gambling Vs Stock Market
Posted : admin On 3/27/2022Gambling on sports may be more fun, but it's definitely a more risky use of money than putting it in the stock market. In the long run, investors have the chance to make more money because there. Gambling Vs Investing – Investing Pros and Cons. 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 difference between investing and gambling or speculating is taking calculated versus uncalculated risks,' says Greg Woodard, managing director of portfolio strategies at Manning & Napier, an.
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Right before the 2010 Super Bowl, a page 1 article in the February 5, 2010 Wall Street Journal opened with this sentence:
“Investors are sometimes accused of treating the stock market like a casino. Now, one Wall Street firm wants to treat casinos like the stock market.”
The article details the decision of a Wall Street bond-trading company to take over the management of sports betting at a new Las Vegas casino. Lee Amaitis, the company executive who runs the betting operation, says the firm got into sports gambling because “we wanted to turn gamblers into traders.” Using sophisticated financial-markets software, bettors can not only bet on the final outcome, but also make wagers on events during the game, such as whether the next pass might be completed, or who kicks next field goal.
On several occasions, the article noted similarities between investing and gambling. The article even featured a bond trader-turned-professional gambler who said “Wall Street is just a form of legalized gambling.”
Is investing just a form of gambling? For many investors, the answer may be “yes.” But it doesn’t have to be. And it probably shouldn’t be.
In July 2000, Tom Murkco, the CEO of Investor-Guide.com, published an essay titled “What is the difference between gambling and investing?” While Murkco noted that many aspects of gambling and investing might appear similar, there were several distinct and easily defined differences.
For either investing or gambling, the beginning of Murkco’s definition is the same: An activity in which money is put at risk for the purpose of making a profit.
But while the purpose of gambling and investing is identical, the methods by which the purposes are achieved are drastically different.
Here are Murkco’s distinctions:
When someone invests…
- sufficient research has been conducted;
- the odds are favorable;
- the behavior is risk-averse;
- a systematic approach is being taken;
- emotions such as greed and fear play no role;
- the activity is ongoing and done as part of a
- long-term plan;
- the activity is not motivated solely by entertainment or compulsion;
- ownership of something tangible is involved;
- a net positive economic effect results.”
When someone gambles…
- little or no research has been conducted;
- the odds are unfavorable;
- the behavior is risk-seeking;
- an unsystematic approach is being taken;
- emotions such as greed and fear play a role;
- the activity is a discrete event or series of discrete events not done as part of a long-term plan;
- the activity is significantly motivated by entertainment or compulsion;
- ownership of something tangible is not involved;
- no net economic effect results.
When defined this way, it’s easy to see the differences between investing and gambling. It’s also easy to see that because of the methods some people use to invest, their behavior may more closely resemble gambling.
For example, industry studies have repeatedly shown that the behavior of mutual fund investors often accounts for poor investment performance. Because they don’t approach investing systematically, emotions like greed and fear may cause people to make impulsive decisions, with little or no research. Not surprisingly, the results from these methods more often resemble the returns from lottery tickets.
Not Gambling with Your Investments: Easier said than done?
In his book, Snap Judgment: When to Trust Your Instincts, When to Ignore Them, and How to Avoid Making Big Mistakes With Your Money,author David Adler says it’s the psychological component of investing that is the most difficult to manage. Adler contends that behavioral research shows many individuals have an almost over-whelming set of hard-wired dispositions to take gambles rather than make investments. Adler quotes Andrew Lo, an MIT professor of finance:
“The same neural circuitry that responds to cocaine, food, and sex has been shown to be activated by monetary gain as well.”
For some people, the thrill of investing/gambling can be addictive. But when the stakes are one’s financial future or retirement, or your children’s college education, the need for a thrill shouldn’t come by jeopardizing one’s investments.
This imperative to not compromise investing by gambling highlights one of the greatest benefits of working with a team of financial professionals: Besides receiving informed advice, a financial professional can often serve as a protection against gambling with your investments, by encouraging you to make sound decisions based on good research that have a high likelihood of success.
Take a moment to consider the last few major financial decisions you’ve made in the past year. Then look at the list above. Did you make an investment or take a gamble?
Sports gamblers have lots in common with stock market investors.
They both believe they can predict the future, and they sometimes fall into the trap of making decisions with their hearts instead of their brains. And of course, they both hate to lose.
But don't let those similarities fool you. Gambling on sports may be more fun, but it's definitely a more risky use of money than putting it in the stock market.
In the long run, investors have the chance to make more money because there are fewer downside risks.
To put it another way, the stock market is a lot more forgiving than the MGM Grand (let alone your local sports bookie).
'A lot of people regard investing as gambling, but I frequently say no. Which casino in Atlantic City, Las Vegas or Macau pays the bettor 73% of the time?' said Sam Stovall, chief investment strategist at S&P Capital IQ.
That's the percentage of time that Stovall's research shows the S&P 500 -- the gold standard in the stock market -- has increased in value during the years since 1926.
Those are pretty good odds.
Sports Gambling Vs Stock Market
The betting appeal: Americans bet an estimated $380 billion each year on sports. It's easy to see why fans may be tempted to gamble on their favorite teams and athletes. Gambling on football star Peyton Manning to win might seem like a safe bet, especially compared with picking winners in the stock market.
'You're making a wager based on some facts and some intuitions. And in neither instance can you be guaranteed to be correct,' said Randall Fine, managing director of The Fine Point Group, one of the casino industry's largest consulting firms.
Manning is really, really good at what he does for a living. Heck, even his commercials are funny.
But take it from one person who has lots of experience in both worlds.
'Betting is more difficult and riskier,' said one resident of Hoboken, New Jersey, who bets on illegal gambling sites and also invests in stocks. He asked for his identity to be withheld due to legal concerns.
Gambling And Stock Market
'A large, steady company has a low chance of plummeting and causing you to lose all your money, but even Peyton Manning doesn't cover the spread sometimes,' he said.
All or nothing: Gambling on sports tends to be a zero-sum game. A bettor gambling on the Green Bay Packers will instantly lose his or her entire $500 bet if Aaron Rodgers and his teammates fail to win or cover the spread.
Gambling Addiction And Stock Market
However, someone sinking $500 into Apple stock has little risk of losing that entire initial investment, especially in the short term. The stock might go up and down some, but it typically doesn't go to zero.
Investors also have the ability to spread their money out among many stocks. People often invest in funds that buy dozens or even hundreds of stocks, which helps reduce the risk.
And investors have greater access to tools that can minimize the risk of losing money. For example, a stop-loss order instructs a broker to dump a stock when it tumbles below a specific price.
Such hedging tools are not as readily or even feasible to sports gamblers, Fine said.
At the same time, investing in stocks actually carries higher upside potential. While many stocks offer steady returns, investors sometimes hit the jackpot (think: buying Apple back in early 2009 or Tesla in 2012).
Gamblers and investors also have far different time horizons.
A stock can theoretically be held onto for an infinite amount of time, but a sports bet can end in the blink of an eye.
Even the unlucky investors who jumped into the market at its peak in October 2007 eventually made their money back when stocks reclaimed their pre-recession levels in 2013.
The same can't be said for those who bet big on the Denver Broncos last Super Bowl.
'You can hold onto your betting tickets all your life, but you're not going to get squat,' said Stovall.