Stock Investing is Not Gambling – But it Can Be

Share Post: facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.

Published by Brett Carson

I have two pet peeves when it comes to discussing stocks with individual investors, whether it’s friends, family, a doctor or a cab driver.  The first is when someone asks what price a stock is selling for and then coming to the conclusion that it’s cheap or expensive depending on the number of shares they can buy. Of course, valuation is based off of a stock’s price in relation to earnings and other metrics such as quality and growth, and investing $10,000 is still $10,000 whether you own 1,000 shares of a $10 stock or two shares of a $5,000 stock.

My other pet peeve is when people hear what I do for a living and equate it to gambling.  “Oh.  You’re a stock analyst?  Isn’t that just like Vegas?”  First, gambling has a binary outcome – when you place a bet, you either win or lose it all.  While the value of your stock investment will certainly move up or down, it’s very rare to lose everything in an instant (the exceptions being if you’re trading in penny stocks or using high amounts of margin).  Secondly, gambling is a game of chance.  There are defined mathematical probabilities of outcomes that are most often not in your favor.  However, investing in stocks gives you the partial ownership of a company’s assets and future cash flow.  You now own a part of that business with the expectation to generate a return on your investment.  It’s very similar to what you see on the popular TV show, “Shark Tank”.  Mark Cuban is not playing roulette with his money when he buys equity of a promising start-up.  Neither is an educated stock investor with an appropriate time horizon.

Where investing does become very gambling-like is when people invest into companies that they know little about, have short time horizons, or are investing money that they cannot afford to risk.  I’d also throw the penny stock investors and those that use high amounts of margin into that group as well.

The point is if you’re going to invest into stocks, make sure that you know what you own, why you own it, and have an appropriate time horizon to earn a return on that investment.  The market is an extraordinary product of capitalism that allows everyday people to own portions of some of the world’s most successful companies.  It is not a casino unless you make it one.

Share:
facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.
Share Post: facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.

RECENT POSTS

The Basics of Bucketing

Most of us have a jar of cash for something, whether it’s designated for Friday night pizza or savings for an upcoming event. Keeping jars of cash for certain things exemplifies our natural tendency to put money into categories.

Proactive Tax Planning Starts with Goals

All planning – but especially tax planning – should line up with your goals. You should never do anything solely because you’re going to get a tax benefit. Rather, you should always do things that tie back to your goals, with tax benefits being an added bonus.

Trends to Watch Out for in Q1 2022

We’re in a pretty interesting juncture in the markets. As we kick off the third year of the COVID-19 pandemic, the omicron variant is spreading across the country.

The Opportunity in Change: How Changing Goals Change Financial Plans

During the pandemic, my family moved into a new house. We weren’t planning on moving, but that didn’t stop us from participating in the pandemic housing boom. But we did so at a time where the kids weren’t yet out of school, so for about three weeks, we owned two homes. Instead of having to …
1 2 3 7 8 9 10 11 104 105 106

Get in Touch

In just 15 minutes we can get to know your situation, then connect you with an advisor committed to helping you pursue true wealth.

Schedule a Consultation