4/2/2022

Difference Between Investment And Gambling In Tabular Form

Investment and Gambling (Part Five): Examining More Distinctions

Difference Between Investment and Gambling. However, there is a huge difference between investing and gambling when it comes to stopping losses. In gambling, particularly in sports gambling, there are no loss-mitigation strategies due to the activity being so speculative. Stock investors however can set up stop losses on a stock investment. The Difference Between an Investment and Gambling Sara Williams May 19, 2017 People who try to use money to make more money are always presented with risk. (Newswire.net- May 19, 2017) - You hear a lot of people bashing investment in the stock market. These individuals tend to describe Wall Street as a casino, and stock investment as gambling. '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. This is the most essential difference between gambling and investment. The investors and traders have different options to preserve themselves from a complete loss of their capital. To put a stop order to your shares is a simple method of avoiding the risk.

[Welcome to the fifth installment of our gambling/investing series. Just in case you missed them, you can still read Part One, Part Two, Part Three and Part Four]

Let’s look a few more of arguments made in support of the notion that gambling and investing are not similar. Again, I think you’ll find that the two practices share more in common than many would like to admit.

Mathematical Expectations. Many investors go out of their way to avoid any association with gamblers. Sometimes, they’re making valid arguments. Sometimes, they’re claiming that “mathematical expectations” differentiate the two pursuits. That isn’t a compelling position.

Financial Mentor makes the argument:

Gambling and investing are both games of chance. Both involve probabilities where you put money at risk with the hope of a return, and both can make your hard earned savings vanish when you bet wrong.

So what is the difference between gambling and investing, and why should you care?

The difference boils down to one simple concept that sounds intimidating but is actually easy to understand – mathematical expectation.

That sounds good and it certainly puts investment in a positive light. The problem? It’s not really true.

The argument basically maintains that the difference between investment and gambling is the fact (and it is, admittedly, a fact) that a smart investor acting on the best possible information has a significant “edge” over the gambler.

That’s not a distinction between gambling and investing, though. It’s a distinction between different gambling options based on the odds.

Would you believe that blackjack is not a form of gambling because it offers a greater chance of winning than does a stay at the craps table? Of course not. Both are gambles. So was your latest stock purchase.

The fact that good investment has a much greater likelihood of creating better results doesn’t somehow divorce it from the world of gambling. It just makes it a better bet. And it remains a bet because even the wisest investor is at risk. If we’ve learned anything over the past few months, it’s the fact that even sane, conservative, well-planned investment strategies can stink the joint up like a bad beat on the river at a hold ’em table.

Time. Investing is long term. Gambling is short term. That’s a common position held by those who don’t think the two pursuits share a great deal in common. Matt Krantz outlined the argument in USA Today:

Investing is slower. You hope to double or triple your money, but over decades, not minutes or hours. This is possible by investing your money in companies that increase prices and profits steadily over time and return cash to investors.

The problems with this perspective?

First, it chooses to evaluate gambling as singular events and investments as a whole. Gamblers may opt to be in it for the “long haul”, making certain bets or engaging in certain behaviors over an extended time.

Second, it wrongly argues that investors are only interested in long positions. How long do you have to hold a stock to qualify as an investor, we might wonder.

Third, the time distinction is arbitrary. It doesn’t address the core motivations and mathematical underpinnings of either gambling or investment. It’s a straw grasp, trying to force a distinction artificially where none really exists.

Luck vs. Skill. This is probably the most common (and most self-serving) arguments investors offer as proof that they’re not gamblers. Don Luskin echoes the common sentiment in Capitalism Magazine:

The central idea that separates gambling from serious investing or trading can be discovered in the old saying, “I’d rather be lucky than smart.” The essential distinction is that gambling isn’t smart, and depends entirely on being lucky — while investing depends on being smart (but being lucky never hurts).

Luskin concedes that luck has some role in investment outcomes, but he still maintains that the dividing line is the “fact” that gambling is an inherently luck-based activity.

That represents a serious misunderstanding of gambling. Sure, there are those who slide a twenty into a slot machine and hope for the best. Those people are operating from a purely luck-based perspective. But what about the poker player who’s honed her skills for decades? What about the sports bettor or race handicapper that studies events, just waiting for the right opportunity to make a move? Hey, we can even toss in the weekend blackjack player who took the time to learn basic strategy.

These gamblers are not operating purely from a luck-based model. Yes, luck will play a role in their success, but luck can make the difference between a windfall and whether that hurricane barely misses the housing development into which you just sunk $150K, too.

The arguments trying to separate gambling from investing are usually rather superficial. They look for ways to distinguish the two for the sake of convenience, rather than based on the actual decision making involved shared in both processes.

HOWEVER… And you’ll notice that was capitalized…

Investing is probably the best possible form of gambling… We’ll discuss why tomorrow.

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Your approach determines whether you are investor, speculator or Gambler?

Difference between investment and gambling in tabular format

Most of the people who are participating in different asset classes like Equities, Commodities , Real estate or other asset classes don’t understand whether they are actually investor, speculator or gambler. It is very important to understand your own behavior as an investor because that will determine your success as an investor. People who create positions in Futures and options also believe that they are investing in futures but actually that is speculation. So it is very important to understand the difference between Investment, speculation and gambling.

Following chart will clarify the how investment and speculation are different.

From above chart it is very clear that investor and speculators have different approaches towards different asset classes like equity, bonds etc. Taking positions in Futures & Options or commodities for high returns over short term are the ways to speculate and investing in shares and mutual funds or buying Gold through ETF with a reasonable return expectation over long term are ways to invest in these asset classes. Now let us understand what is Gambling?

What is Gambling ?

Gambling is fundamentally different from investment and speculation in following respects.

Quick Outcome: Normally Outcome of gambling is know very quickly. The outcome of rolling a dice or the turn of a dice is almost known quickly.

Results don’t depend on Economic activity: Normally results of gambling are not dependent on any economic activity. For example when you create position in futures or commodities the prices of stocks or commodities are some where dependent upon economic activity but when you play card and bet on that the outcome of that doesn’t depend upon any economic activity.

Lack of significant Economic benefit: Generally gambling doesn’t provide significant economic outcome. Whereas, investment and speculation can provide significant economic outcome.

Difference Between Investment And Gambling In Tabular Form Pdf

Gambling should be for fun : Normally rational people do gambling for fun and not for making money.

So it is clear that gambling should be more done for fun and not for making money.

Investor or Speculator: Who are you?

Now identify yourself whether you are Investor or Speculator?, from your approach towards investments. If you invest with a very short horizon, without looking at fundamental aspects and have a very high return expectation then actually you are a speculator and not an investor.

Your approach and not instruments only decide whether you are investor or speculator : it is not necessary that if you are investing in shares and stocks then you are an investor, because If you don’t look at fundamental aspects of companies and have a very high return expectation over very short period of time then actually you are an speculator and not an investor.

Get ready for the risk and return or change your approach : If your approach is that of speculator and you want to remain the same, you should be ready for risk and return of the same. You may make heavy profits in short term with a little investment and you may also lose your capital within short term. Whereas in case if you adopt an approach of investor, you may make reasonable returns but relatively you are in much safer position.

Difference Between Investment And Gambling In Tabular Format

Conclusion: To conclude with, there is significant difference in the approach of an investor and speculator. Speculator may make very good returns over a short term period once or twice, but over long term a speculator normally loses or doesn’t make much returns. So it is better to control your greed factor and become investor.

Difference Between Investment And Gambling In Tabular Forms

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