Thursday, March 5, 2009

Is Stock Market Investing Gambling.

One of the biggest myth among many people is that they think stock market investing is just like gambling.
I have mentioned this in my earlier list.
People shy off from investing as they think it is gambling.
Many of our parents and grand parents didn't invest as they thought investing is just like gambling otherwise all of them have been just like Warren Buffet. If not at lest multi-millionaire.

Meaning of Investing and Gambling.
Merriam-Webster's first definition for "invest" is : "to commit (money) in order to earn a financial return." And the second definition is "to make use of for future benefits or advantages."

What about "gamble"? The first meaning is "to play a game for money or property" and the second is "to stake something on a contingency."

Some say it (Investing) is very much like gambling. While some say its myth comparing stock markets with gambling.
What I feel - In true sense if you go and see investing is buying the stock buy predicting the future (fundamentally or technically)with a sole aim to earn a profit. While in gambling you cant predict any future , people blindly put money without knowing the future.

There are some important differences here, though. Investment brokers may live off salaries or commissions, but the day trader depends directly on the market for income. The gambler may have a lot of good days, but the bad week will sap the earnings from a few good days. There is no doubt that the psychology behind gambling and active trading seems alarmingly similar, while gambling is considered illegal and illicit in many parts of the world, or at least looked down upon, day trading is mysterious and high sounding.

My point is that if you study the trends of the stock market, you can always gain with minimal (if any) loss. Gambling precludes some level of loss (and hopefully gain) -- even the best poker players have lost money, although they feel that their skills can outwit most casual players.

The other difference is the expectation. Gamblers don't go to Las Vegas with $100 hoping to come back with $115. They want to double or triple their money quickly. Investing is slower. You hope to double or triple your money, but over decades, not minutes or hours.

Markets depend on trends . Gambling is to go by flow.
Study and knowledge in markets is essential. In gambling a good knowledge base is not required , it depends on luck.

At the end I won't say stock market is not gambling , a bit of it is gambling i.e. Day trading. There are speculators (gamblers) in stock markets who may act as a bear or even a bull which affects the price of the stock on a high level on routine basis.
Take for an instance a few week ago rumors for ICICI bank becoming bankrupt were spread by a broker in Mumbai. So he speculated the stock price.
Shying of investing in Stock is not done. Warren Buffet became rich by investing. So can you.

Happy Investing.

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