Archive for December, 2008
If you’re tracking the market, you need access to a stock ticker.
Some of us might have the luxury of a television set tuned to one of the business channels within our view at all times, but for the rest of us a free desktop stock ticker makes more sense.
There are many stock ticker options available. Here are five you might want to look into. All offer varying degrees of customization and different display options but they do have one thing in common–they’ll give you a chance to track the stock market while you use your PC. Here they are:
FreeStockTicker.com. If you’re using a Windows XP/2000 computer and have at least 1 MB of free disk space, you can use this option to track your portfolio. According to its creators,
“You can configure everything about the stock ticker in easy to access menus with drag and drop interfaces. The stock ticker has customizable skins and uses an automatic updater so that the version is always updated. The best part is that this is freeware and never requires registration.”
Free Desktop Stock Ticker. Mark Crisp offers this free ticker download. It’s a sleek and attractive ticker that can run right across the top of your desktop. Crisp doesn’t provide a great deal of information about his tracker on its website, but he is a well-known teacher and adviser.
Cool Tick. Cool Tick claims to be the web’s best stock ticker. According to the Cool Tick site, it’s a “small, scrolling stock ticker…” with an “unobtrusive design that lets you work while the market works for you”. It appears to be readily customizable, too. Based on the user testimonials, this is a fairly strong entry into the PC stock ticker field.
Ticker Tape. Here’s another desktop ticker option to check out. According to the download site,
“TickerTape is a small desktop ticker that displays your stocks and keeps you connected to other investors with a built-in message board. When messages are posted and you are monitoring the stock the stocks envelop will light up. The user needs to register on the Web site to use the message board.”
It appears as if the makers of TickerTape update the program regularly, which is definitely a quality indicator.
Stock Ticker Application Bar. This shareware offering is described as follows:
“Stock Ticker Application Bar is a software designed for continuous retrieval of stock quotes through the Internet. It is an simple stock ticker tape that resides at the top or the bottom of your screen and displays quotes of predefined list of stock and indices symbols in a form of a scrolling message. It displays quotes for up to 200 securities, automatically or manually updates data, has user defined positioning, scrolling speed, fonts selection…”
If you’re in need of a way to track the market while you do other things on your computer, these free desktop stock ticker options may be exactly what you’ve been looking for. There’s no reason to wait on delayed results or to stop everything just to find out how your investments are faring. You can get the information easily and instantly with programs like these.
CAUTION: This list of free desktop stock tickers does not represent an endorsement of any kind. These are free-standing programs and users will need to download files in order to use them. There is always a risk associated with downloads and you should do your due diligence before downloading any of these ticker programs. Better safe than sorry!
A recent press release announced IHOP’s new menu additions. Have you seen these? Here are three of the seventeen (yes, seventeen) new things you can get at IHOP:
— Butterscotch Rocks Pancakes: Four fluffy buttermilk pancakes filled with pecans, granola and butterscotch chips, then topped with whipped topping and drizzled with caramel sauce.
— Bacon Temptation Omelette: Loaded with six strips of crispy bacon, a rich cheese sauce, Jack and Cheddar cheeses and diced tomatoes.
— Hearty Ham & Cheese Omelette: Stuffed with diced ham, a rich cheese sauce and Jack and Cheddar cheeses.
I know what you’re thinking. It’s time to hop on over to IHOP.
But you’re watching your money. You’re trying to be frugal. So, you’re thinking about getting your hands on an IHOP coupon, right?
Unfortunately, it’s easier to find pictures of monkeys who ride dogs than it is to find free IHOP coupons.
When you consider just how ubiquitous International House of Pancake establishments are (most of us can probably think of two or three within easy driving distance of our homes), it’s amazing that finding a fistful of IHOP coupons is so tough.
Here’s the good news: The coupons do exist. That’s right, they are out there. I discovered visual proof of IHOP coupons here, for instance. Take a look. It’s an honest-to-goodness newspaper advertising circular that featured International House of Pancakes coupons. Although those particular savings opportunities have expired, that doesn’t mean that we’ll never see another IHOP coupon.
In fact, the good people at IHOP headquarters have said that themselves. If you check the “frequently asked questions” portion of the IHOP website, you’ll find some information that will be interesting to would-be coupon cutters. IHOP says the do periodically issue coupons and that they usually deliver them as part of the Sunday newspaper advertising.
Finding free IHOP coupons online, however, is a challenge. They may be out there, but you’ll have to do some real digging to find them. Some sites that promise coupons don’t seem to really deliver (check out the angry reviews on this offer) and other sites that have coupons for other places come up empty for the International House of Pancakes.
Don’t give up on the search though. Every once in awhile you can get lucky. I found a genuine IHOP coupon online. It’s not going to feed a family of four for $5, but it’s proof positive that you can find coupons for the restaurant online. Check it out! Don’t surrender your plan for getting that Funny Face or some Rooty Tooty Fresh and Fruity action on the cheap, people. Coupons for the best pancake joint in the USA do exist!
The real key to this particular IHOP coupon is in the fine print. It says that the original recipient of the coupon got it via email because he or she signed up for mailings at an IHOP restaurant. So, the best way to score a coupon might involve signing up for IHOP’s mailing list the next time you eat there.
IHOP coupons aren’t all that easy to find, but they’re definitely out there. IHOP says so and I found at least one free coupon for the restaurant chain. With a little luck, you’re sure to find some of your own, too.
If you do, feel free to leave instructions about obtaining them here in the comments. Those new menu items look good and I can’t be the only person with an itch for IHOP. We’d all appreciation a little direction towards getting a nice healthy discount on our breakfasts, right?
“Who Wants to be a Millionaire?” is a great game show title because it’s a question everyone answers “YES!” to.
The more difficult question is “how do you become a millionaire?” That’s the one we’re looking at in this post.
You’ve probably heard about the best way to eat an elephant, right? The best way to eat an elephant is one bite at a time.
The same kind of thinking applies to becoming wealthy. There’s really not much of a trick to figuring out how to become a millionaire. It’s more about disciplining yourself to do the simple things that produce the desired result. And doing them again and again. Like eating an elephant, it’s a matter of repetition.
The core system to becoming a millionaire consists of pretty basic steps. You can find those steps outlined and illustrated all over the web (I found them at Generation X Finance and Cash Money Life, for example). In a nutshell, it looks like this:
- Earn money.
- Spend less than you earn.
- Save and invest the difference between your earnings and what you spend.
- Repeat the process. Eat the elephant one bite at a time.
Seriously, if you want to know how to become a millionaire, that’s all you really need. It’s a strategy that makes perfect logical sense and that has undoubtedly worked for countless people.
So, why isn’t everyone on the way to a seven-figure net worth?
It’s because each part of the process offers some tough challenges. Earning requires employment. Higher earnings makes it easier to hit the million dollar mark, but that requires training, experience, education, effort, etc.
Living within one’s means isn’t always easy, either. Just look at the average American’s credit card balances if you doubt that. Building and sticking with a budget is hard work.
Saving and investing wisely? There’s a lot of good advice out there, but not everyone is ready to take it and to follow it. Some people aren’t even willing to find it in the first place.
Repeating the process. This is where it gets really messy for many people. It is possible to eat an elephant one bite at a time, but most folks don’t have the patience to get the job done. Elephant isn’t that tasty and we’re used to getting things done quickly. Working, budgeting and saving aren’t much fun and we’re not used to waiting for a payoff.
So, now we have a good idea of how to become a millionaire. We also have a strong idea as to why so many people fail to make hit the million dollar mark.
Where does that leave us? To be honest, it deposits us in a rather ugly spot. If you want to be a millionaire, you’re going to have to get dropped off at the intersection of Discipline Drive and Repetition Road. And you’re going to need to be comfortable there.
You could win the lottery. Your great Uncle could die and leave you several trunks filled with cash. Those probably aren’t that likely, though. That leaves you with one other route to being a millionaire.
Earn, economize, invest, repeat.
That’s it. Simple in theory, tough in practice. But it’s worth the effort.
Being a millionaire will leave you with a greater sense of satisfaction than you could ever get from chowing down on a pachaderm!
After discussing why we can understand investment as part of the gambling world, it’s now time to understand why we should erase the gambling/investing distinction.
One reason would be intellectual honesty. In so many cases, people try to draw lines between gambling and investing because they don’t want to be associated with what is often considered a negative social force. They do intellectual cartwheels to distinguish their profit-pursuing techniques from those of the folks at the blackjack table more as a matter of status than as a matter of reality. If you want to relieve a little cognitive dissonance, it makes sense to stop delineating between gambling and investing, recognizing that neither is wise or evil by their nature.
The more important reason, at least for our purposes, to get rid of the line separating the two practices is purely pragmatic. We’ve already determined that investment is a superior form of gambling. Wouldn’t it follow that we should take advantage of whatever knowledge we can in order to improve our investment performance? Recognizing the way investment links to the larger gambling umbrella provides us with perspective and information that can guide smart investing.
Take, for example, this post from a Motley Fool discussion board. The author is an experienced poker player and has been involved in the markets for over a decade. His understanding of how gambling and traditional investment interact has led him to some conclusions that could help virtually any investor. One example:
3. Recognition of high probability situations. Dhandho, in other words. Figure out how to get your money into play with a 60-40 advantage over and over and riches will follow. In investing there are choices every day to hold, buy or sell. Most of the time this will be to hold, but when the high probability situations roll by, grab on and get a piece.
4. The corollary to #3. Don’t bet unless you have lopsided odds. Taking those 51-49 bets, though positive, leads to very high variance. Leave that to the institutional investor who has the bankroll to spread those bets around in enough places to get to the long term. Most individual investors will never get there.
Obviously, there’s some potential for application of lessons learned in the gambling world to the sphere of traditional investment.
Another example? Discussions of the Kelly Criterion. Most investors probably haven’t even heard of the Kelly Criterion. Rest assured that most serious blackjack players have. A Dash of Insight notes that economists, gamblers and theoreticians don’t necessarily agree on all aspects of the criterion, but it’s certainly a concept with potential applicability to traditional investment.
You can see that in Ray Dillinger’s “Analysis of Multiple Simultaneous Non-Independent Investment Opportunities with Multiple Possible Outcomes”. It’s a lengthy effort at applying the Kelly Criterion to investment options. Agree or disagree with all of its presuppositions and conclusions, it’s serious food for thought for any investor.
I chose these two examples to explain why what’s usually termed “gambling” knowledge can be valuable for “regular” investors. I also chose them because they provide a glimpse at the serious side of gambling, an endeavor often considered juvenile and unguided by those with little direct experience.
Do you need to know when to double down on a soft 14 in order to make smart investment decisions? Of course not. It wouldn’t hurt, however, to understand gambling theory and its potential application to stock choices, though. It might even help.
While researching these posts, I found a few other resources you might want to read. They’re interesting and add real value to the discussion.
Simple Stock Investing’s “A Walk Through Gambling, Insurance, Investments and Probabilities, or Why Investing Isn’t Gambling, Although It Can Be”. Although I do argue that investing is gambling, this is a great series of posts explaining the relationship between the two practices and how they interact. Truth be told, my position and that of the author don’t vary that much.
Dow Investment Group’s “Investing vs. Gambling”. The summary explains the contents nicely: “Some people regard investing as gambling; others, who think they are investing, are, in fact, gambling. The purpose of this paper is to try to help the reader figure out to what extent he may be doing or contemplating either and, thereby, enable him better to allocate his financial assets in accordance with his true needs, objectives, and aspirations.”
We’ve spent a lot of time discussing why investing is part of the gambling world. Usually, when you hear someone make that argument, it’s usually because they hold investment in disdain. Terming something a “gamble”, after all, is usually a pejorative practice.
That’s not the case here. Although I believe that investing is a form of gambling, I don’t think that makes it a foolish pursuit. I don’t believe that investors should run away from the “gambling” label, either. That’s because investing is the best form of gambling.
Why? It’s simple.
Investment offers a better overall rate of return than other gambling options.
Investment isn’t a sure thing. You don’t need to be one of Bernie Madoff’s former clients to understand just how uncertain the world of investment can be. People win and people lose.
Overall, however, the percentage of losers among investors is much smaller than the percentage of losers among gamblers.
Most forms of gambling have a negative rate of return. If you walk into a casino and play roullette all night, you can expect to lose money more often than not. The same goes for the slot machines. The same goes for baccarat. The rule applies to video poker, Spanish 21, Pai Gow and just about everything else that’s happening in the joint. You can expect negative rates of return in almost all instances.
There are exceptions, however. The house has an edge when you play blackjack using perfect basic strategy, but statisticians and pros agree that a smart card counter in the right game can reverse the odds to his or her favor. A good poker player has an “edge” over her opponents that exceeds the house’s “rake”. A good horse handicapper or sports bettor who limits himself to betting when the right opportunities are present can boast of a likely overall positive return.
Even in those cases, however, the probable rate of return is much lower than the rate of return associated with most investments. Market players can anticipate long-term wins, whereas gamblers can expect long-term losses.
Both groups, however, can experience wild variations over shorter time periods. You might be a horrible blackjack player, but you can catch a lucky streak that turns your $200 buy-in into a few grand within hours. You could be a savvy investor, buy your perfect stock pick might get blindsided by a previously-unforeseen set of circumstances overnight.
When all the smoke clears, though, a well-educated investor will outperform a well-educated gambler. It’s that simple. Both are gambling, one’s just doing it more intelligently than the other.
If you pull the numbers on almost every “mainstream” form of investment, you’ll discover a positive earning trend over a period of several years. If you run the numbers on the table games in Atlantic City or check the balance sheets of Las Vegas casinos, you’ll find that the gambler can’t find many ways into positive territory.
So, assuming you don’t need a miracle tomorrow in order to avoid some kind of horrible outcome, it makes more sense to put your money into what we generally consider “investments” instead of risking it on what is usually referred to as a “gamble”.
Even though gambling offers a stronger chance for a substantial immediate return, it has such a large risk of zeroing out that it just doesn’t stand up as a good investment. Even the expert card counter who does find a way to edge the house by 2% is going to do better in the longer run buying blue chips than she will buying stacks of chips at Caesar’s.
I wanted to make sure this post appeared in this series because I don’t want anyone to develop the impression that I’m arguing in favor of gambling. Recognizing that there are similarities between a gamble and an investment doesn’t necessarily legitimize gambling as an option. It’s still a losing proposition relative to smart investment.
So, what difference does it really make if we erase the gambling/investment distinction? What’s the benefit of considering investing as part of the gambling world?
That’s what we’ll discuss tomorrow…
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.
We’ve seen the way investing falls into the category of gambling from a definitional point of view. We’ve also noticed that the two practices have some strong similarities.
Many, however, argue that gambling and investing are not related. Let’s look at a handful of their arguments.
Unproductive Risk vs. Productive Risk. Gambling, some argue, represents an unnecessary and unproductive risk. Investment, on the other hand, involves risks necessary for the functioning of the overall economy.
This argument is often presented by those who are trying to find a way to morally justify investment while holding true to the tenets of their faith that cast gambling in a sinful light. Dave Rodeback, for instance, couches the argument in terms of a discussion within the LDS noting, in part:
Gambling is just the opposite. It creates unnecessary risk, either for entertainment, to satisfy an addiction, or because someone wants to get something for (almost) nothing. Overall, it is not a productive risk, except for the casino, government, or church which sponsors it. What is won never exceeds what is lost, and if a sponsoring organization gets some of the money, what the winners win can be far less than what the losers lose. By contrast, investing in business typically creates more wealth.
I actually think this is one of the stronger arguments in favor of a gambling/investing distinction, but it still has some weaknesses.
Initially, it starts with an assumption that capitalistic economic structures are essentially moral in nature. You can make that argument, but there are plenty of people out there who will argue otherwise. Those who advocate a distinction don’t make the argument. They start with it as a presupposition, despite the fact that it’s in contention.
Secondly, it makes unfair or inaccurate assumptions about the motivations behind the activity. Most investors don’t invest for any moral reason. They invest for the same reason others gamble–to profit. The fact that there could be some kind of socially productive element to the investment process is secondary in the decision making process, if present at all. Meanwhile, all of the ugly motives often ascribed to gambling are applicable to the behaviors of many investors.
Third, arguing that the risk is productive with investment because it often produces desirable ends has nothing to do with the process of investing itself. There’s nothing intrinsic in investment that makes it productive. We can easily imagine investment in socially irresponsible, yet profitable, endeavors that would do more harm than good. Wealth generation isn’t a necessarily good thing. It all depends on who’s creating the wealth and what they decide to do with it.
Tangible vs. Intangible. Another reason some claim that gambling is distinct from investing involves what one actually “gets” for his or her money. Finance Mind explains:
When you place a bet on a casino game, you are actually buying a “chance or opportunity”. It is an intangible product.
When you invest in stocks, you are investing in the business. You are investing into a tangible product or business.
That’s true. The question is whether or not it really matters. Personally, I don’t think that it does in terms of differentiating between gambling and investing.
Most investors aren’t really interested in their tangible ownership of a company in which they’re investing. They’re interested in whether or not the value of that interest grows. Why do they have that interest? It’s not because they want to help build the company. It’s because, at some point, they want to sell the stock at a profit (or to borrow against its value).
The element of tangibility is there, but it doesn’t really govern how anyone approaches the market.
Gamblers choose their games and make their plays in hopes of profiting. They aren’t concerned with owning a chunk of the casino or sports book. They’d be out of luck if they were. The underlying thinking of a gambler, however, isn’t dissimilar from that of an investor. They want a return.
We’ll look at more of the arguments favoring a separation of gambling from investing tomorrow…
We’ve already determined that gambling and investing are remarkably similar from a definitional point of view. It’s easy to see why investing would fall under the definitional umbrella of gambling.
But this isn’t just a word game. The two concepts share a few other similarities, bringing the arguments of those who claim a distinction into question. Let’s look at a few of the traits the two practices share in common.
Risk/Reward Assessment. Both gambling and investing require the participant to make probability assessments and to weight the likelihood of different possible occurrences in light of potential rewards (or losses). James G. Lainas wrote an interesting Honor’s thesis on gambling and investing, “An Inescapable Truth: Finance is Gambling” in which he observes this similarity and others in detail.
Consider a blackjack player who is holding a “hard sixteen” (a ten/face card and a six) against a dealer who is showing a seven. An educated player recognizes that the odds are stacked against her and that taking another card is a marginally better decision than staying on sixteen. A player who has been closely observing the cards dealt and who has an idea of its remaining composition (i.e. a card reader) may shift the play to staying on sixteen based on the information he has.
In either case, the decision isn’t random guesswork. It involves an assessment of probable outcomes and potential rewards and risks. It’s not much different than the investor who analyzes conditions in order to make a stay/sell decision on a stock in her portfolio.
Don’t get me wrong, they aren’t identical situations and the probabilities involved may be radically different. The underlying thinking, however, is similar.
Knowledge is Power. Both gambling and investment tend to treat well-informed participants more generously than ignorant ones. It’s possible to make money in the stock market by throwing a dart at the quotes in the morning paper, but you’re more likely to experience success if you carefully evaluate potential purchases and companies.
The same holds true in many gambling situations. Consider sports betting. Much like stock purchasing, there are no sure things. However, the player who carefully analyzes situations, match-ups, injuries and past performance will have a leg up on the person who chooses a winner based on the color of jersey that team wears. In the short run, the “I like red jerseys” bettor might get lucky. In the long run, the informed gambler is likely to do better.
This is often overlooked by those who draw a sharp contrast between wagering and investing. They like to make that argument by using examples of betting that are more divorced from investing than others. It’s easy to find a distinction between the two when you’re looking at “betting on a coin flip” vs. choosing a mutual fund.
The line is blurred to the point of erasure, however, when your comparing a stock buyer to a serious horse handicapper.
Systems and Psychology. Gamblers are notorious for their “systems”. The only people more likely to believe in foolproof ways to win? Investors.
Members of both groups, occasionally, stumble upon good ways to maximize the chance of “winning”. The problem? Both groups have members who are prone to deviate from their rational planning in the face of unexpected results or fluctuations.
Investment experts will remind you to invest with your head, not your heart. Serious gamblers will tell you to bet with your head, not your heart. The psychology of the two endeavors and its impact on results is very similar.
We’ll undoubtedly uncover a few more similarities tomorrow when we start directly addressing some of the arguments that claim gambling and investment are dissimilar.
This week, I’m making a comparison between gambling and investing. If you missed Part One of the series, you can find it here.
Gambling isn’t necessarily an investment.
An investment is a gamble.
Many people would like to you believe otherwise. They’ll tell you that there’s a huge distinction (or a series of distinctions) between the two. This argument generally comes from those who are actively involved in investment and who don’t really care for the idea of being caught in the same net with the guy who spends weekends sitting in front of a roulette table.
If you look at the matter closely, though, you’ll realize that those arguments separating the two aren’t tenable. Gambling may not be an investment, but every investment is a gamble.
We’re going to start forming that argument by looking at the two concepts from a definitional perspective. I’m not a big believer in relying on dictionaries as the end-all-be-all method of determining meaning, but they do offer us an idea of how terms and concepts are generally used.
Let’s start with “gambling”.
The Free Dictionary by Farlex (whose definitions are generally in line with other sources) offers the following two primary definitions of gambling:
a. To bet on an uncertain outcome, as of a contest.
b. To play a game of chance for stakes.
2. To take a risk in the hope of gaining an advantage or a benefit.
Let’s contrast that with the same source’s definition of “investing”.
1. To commit (money or capital) in order to gain a financial return: invested their savings
in stocks and bonds.
a. To spend or devote for future advantage or benefit: invested much time and energy in getting a good education.
So, to those who argue that gambling and investment are somehow materially different, I’d like to know how the definition of “gambling” would exclude “investment”.
Obviously, it doesn’t. The two aren’t mutually exclusive.
Instead, it’s pretty clear that “investing” would fit under the larger umbrella of gambling quite neatly. “To take a risk in the hope of gaining an advantage or benefit” seems perfectly consistent with “To commit (money or capital) in order to gain a financial return”.
What are you doing when you invest? You are making a prediction regarding the future value of the investment and you are taking a risk on that investment in the hope of gaining additional value. In other words, you’re gambling. Plain and simple.
That’s just a definitional argument, of course. And it hinges on the way the terms are defined in dictionaries, not in the way we operationalize them for usage. However, I’m yet to uncover any compelling evidence that the concepts underlying the definition of gambling are somehow different than those underling investment.
Additionally, the only people who seem dedicated to somehow arguing that the two concepts are fundamentally different are those who practice investment and who make it clear in their own language choices and quickness to attack traditional gambling that they have a personal interest in making the argument.
Tomorrow, we’ll discuss a few of the reasons why gambling and investment are close relatives. Instead of relying on dictionary definitions, we’ll look at some shared processes and ways of thinking.
I really think that most people will begin to see that the dichotomy between gambling and investment is utterly false. If you don’t think buying shares of your favorite stock is a form of gambling, it can only be because you don’t understand either investing or gambling as it actually is.
This is the first in a series of posts about gambling and investing.
Although it appears as though many investors would prefer to think otherwise, I believe the oft-repeated argument that investing is somehow distinct from gambling is incorrect.
Gambling may not be an investment, but investing is certainly a form of gambling.
If you want to infuriate an investor, tell him or her that investors are gamblers. They’ll immediately offer a variety of arguments attempting to distinguish the two ventures from one another. Some of those arguments sound reasonable and it’s easy, at first glance, to accept them as proof that those who pore over stock trends to find a winning investment are different from those who pore over statistics and weather reports to find a likely football upset upon which to bet.
The arguments separating gambling from investing make it seem almost impossible to believe that the folks reading market reports looking for undervalued stocks share any commonality with the knuckleheads who are pouring cash into slot machines.
If you dig a little deeper and take the argument a little more seriously, however, you may come to the same conclusion I have. Investing is a form of gambling.
The real question is whether or not one form of gambling is better than another. I believe that traditional investment strategies, as we usually understand them, are a much better bet than those you can find in a casino. They’re both gambles, though.
Why is it important to address whether investing is gambling? There are a few reasons.
First, failing to recognize the similarities can give people a false understanding of how investment really works and the risks that are, inevitably, involved. Pretending as if an investment isn’t a gamble is nothing short of misleading.
Second, understanding that investing and gambling are close relatives gives us an opportunity to discuss why some risks are better than others. It allows us another means by which to evaluate financial risk analysis. Investors try to distinguish themselves from gamblers and they usually do so while cautioning others against the folly of believing in casino magic.
They’re right about avoiding the gaming tables if you want to make money, but making those arguments from a hypocritical stance can only undermine their effectiveness. Encouraging smart investing by being honest about why it’s a better gamble than the blackjack table makes more sense than pretending one is good and the other evil.
Third, on a personal level, I’ve always found the “investing isn’t gambling” position annoying and frustrating. I don’t think it’s intellectually honest and I’m bothered by the fact that so many people are willing to embrace the perspective uncritically.
So, here’s the plan for this series.
Tomorrow and Wednesday we’ll talk about why investing is part of the larger world of gambling. On Thursday and Friday we’ll address many of the arguments offered to distinguish gambling from investing. On Saturday, we’ll discuss why investment is a much better form of gambling than your standard casino trip. Sunday, we’ll wrap it up with a post that shows how traditional gamblers and “real” investors can actually learn from one another.
Whether you agree or disagree with the arguments presented, I do invite you to comment. I think this is an interesting topic of discussion and it seems as though there should be some defense of the “investment isn’t gambling” argument, considering its widespread popularity. I’m willing to entertain arguments and I’m always a fan of having my analysis challenged.
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