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

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…