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Is Investing Gambling

By Richard Tomes May 15, 2017 Market Watch

Gambling

 

Sometimes those who are reluctant to invest their money resist because they perceive it to be a form of gambling. Marketing barkers on TV and the radio saying things like, “Don’t risk your money in the Wall Street casino,” help to further this perception while preying upon it to sell their own products. So, “Is investing gambling?”

 

Definition

 

The Merriam-Webster Dictionary defines gamble, “1a: to play a game for money or property b: to bet on an uncertain outcome.” The first definition could potentially apply, except that investing is not a game. The second definition could be referring to many things we do in life, from proposing marriage to going to a job interview; outcomes for most things in life are uncertain. It seems that the brevity of these answers do not address the context fully.

 

In the context of people objecting to investing because they perceive it to be gambling, a more precise definition seems to apply. Those holding this objection seem to view investing as nothing more than a game of chance where a random result will either result in gain or loss more or less immediately.

 

A basketball game is not gambling. A horse race is not gambling. However, people have found ways to gamble on these and many other sports and races. When one bets on a horse race, it is known fairly quickly the result. When one plays the lottery, again, the results are known fairly quickly.

 

There are those who treat markets the same as a horse race as something upon which one may make a wager. They may take a position “betting” on the directional move of a stock or a market. Usually, in a relatively short amount of time (sometimes less than a day) the outcome will be known and money was either won or lost. People engaging in such activities are not really investing, they are trading. Unfortunately, so much of financial TV focuses on the trading aspect of investing, which often may equate to gambling. In order to sell commercial air time, the TV talking heads try to make things sound exciting, just like a sports announcer would do. This distorts the perception of many with regard to making investments in companies (“stocks”).

 

Investing

 

Investing is not gambling except in one way. That is that the ultimate outcome is not known. Yet, investing is not something in which one engages for the short-term outcome. In fact, investing is a great benefit to society. Investing creates businesses, jobs and often improves our lives.

 

“Wall Street” makes investing seem cold and distant. But, let us reduce investing to Main Street with a hypothetical example. Jane, who lives down the street, has an idea to make a better office chair to help reduce back pain for office workers. She thinks her idea is good and shows it to some people who also live on Main Street. They agree that her product is good and needed. But Jane needs money so that she can manufacture, market and distribute her chairs. Those who see the prospects and believe her product is needed and will sell well give her money to get started. In return, she gives them a share in the company and the profits. Like the definition of gambling, the actual success and results are unknown at the beginning. Unlike the definition of gambling though, this is not a game and rather than relying on a chance outcome, the results will depend a lot on hard work. Unlike gambling, the end result will not be quickly known. Indeed, it may take years.

 

Investing is good for society as a whole. Jane, in this example, has investors put their money into her business. She uses that money to buy materials from companies who employ people to make those materials. She then hires people, many who live right there on Main Street with her, and they go about the business of producing chairs. Through investing her time, energy and efforts and through the investment of money from others, Jane is supporting other businesses and their employees and now has her own employees. Those employees use their pay to support their families and, perhaps, to invest in other businesses creating a chain reaction. Eventually, assuming Jane is successful, those who invested in her idea will see their share values grow and likely also get dividends paid to them from the company that Jane founded. (“Dividend” is another term for a portion of the profit of a company.)

 

A Real-Life Investing Story

 

Taking investing down to Main Street makes it sound a lot less like gambling. A real-life investing story between two people comes to mind. One was a young college drop out that started a company (like Jane did in the example story). He had some success, but then left the company and the company began to falter. So, he returned to the company and found it had only about 90 days of money left before bankruptcy. He turned to a competitor of sorts, explained his ideas for the company, and the competitor became an investor giving him the money he needed to stay in business and to develop his product ideas. The results were not immediate. It took some years.

 

The young man was Steve Jobs. The investor was Bill Gates, who invested $150 million into Apple. Next, Steve Jobs gave us the iPod, the iPhone and the iPad, among other innovations that have revolutionized so much of society and benefited many.

 

Back to Wall Street

 

Yes, the stock of Apple trades on Wall Street. But the concept of investing remains the same. Investing is putting money to the use of those with ideas and products and needs in order to provide things that people need and want. Investing provides livelihoods for employees and income and capital appreciation for the investors. Wall Street provides a medium (“The Stock Market”) through which people may easily and efficiently invest money in companies.

 

There are ways to make investing seem very mysterious. It really is quite simple. It is also very good for society. “Wall Street” provides a way to distribute the investment opportunities to many people. Steve Jobs likely would have never called you or me for money when he needed it. He called Bill Gates. Because Apple stock may be bought and sold (for every buyer there must be a seller, of course) via Wall Street we all may have access to invest our savings into companies providing goods and services that are a benefit to society.

 

Conclusion

 

Investing is not gambling. Investing is putting money to work in the economy with the goal of improving the lives of others and increasing the amount of money available to the investor in the future for the improvement of his or her own circumstances. Not all investments will be successful, of course, and investing does involve risk. People may turn almost anything into an opportunity to gamble and the stock market is no exception. But investing in stocks is no more gambling than playing a game of basketball is.