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

Lasting Happiness… Who is it for?

Published by Teresa Milner Living in the fast-paced world that we’ve become accustomed to, it’s easy to get sidetracked with all that’s going on around us. What’s important and not urgent? What’s important and urgent? What’s urgent but not important? What’s not urgent and not important?

Confessions of a Former Task Master

Published by Ron Carson People often ask me how I get away from the office so much. The truth is, I never worry about our team doing X, Y or Z when I am gone. They are harder on themselves than I am. Our culture is what happens when I’m not around.

Are You Picking Up Your Pebbles?

With the New Year approaching, many like to spend time reflecting on past successes, failures, new experiences and gained knowledge, as well as planning for the year to come. As a part of my own reflection, I enjoy reading the following parable…

Investment Discipline

One of the most challenging aspects of investing is not what many may think. Digging through the multitude of options available to place cash can be daunting task. However, keeping your cool when things move in the wrong direction can make or break returns.
1 2 3 88 89 90 91 92 104 105 106

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