There are many people who say that investing in stocks is like gambling in the Casino. Perhaps so, investment and gambling are all related to risk. But gambling is often a short-term activity, while stock investing can last a lifetime. So, in the end, is stocks investment gambling?
Investment is the act of allocating capital to an asset such as a stock with the expectation of making a profit. Risks and profits go hand in hand. Low risk equals lower expected profit while higher profit is usually associated with higher risk. Gambling is a bet based on randomness. That means you will risk making money in an uncertain event and not have many opportunities.
Investors must always decide the amount of money they want to risk, for example 2-5% of the capital. Investors almost know the advantages of diversifying their portfolios. However, expectation of risks and profits can vary greatly in the same asset class, especially stocks.
In essence, this is a risk management strategy in investing: Allocating capital on different assets or different types of assets in the same portfolio, can help minimize potential losses. There are many investors who use technical analysis on stock charts to improve their holding efficiency. Besides, the profit from stock investment will be affected more or less by the commissions paid for stock trading.
More importantly, when you gamble, you own nothing, but when you invest in a stock, you own a stake in the company. And in fact you can even receive company dividends in the form of stocks.
Like investors, gamblers must also weigh the capital carefully. Most professional gamblers are quite proficient in risk management. They carefully study the rules of the game as well as the opponent or the thing they bet on. Card players often seek advantage from other players like poker. They also study the opponent’s manners and betting patterns in hopes of obtaining useful information.
In both gambling and investing, the main principle is to minimize risks and maximize profits. But, when it comes to gambling, the house always has an advantage over the player. In contrast, the stock market is likely to keep rising in the long run. This does not mean that a gambler will never win the lottery and that does not mean that a stock investor will always enjoy positive returns. However, over time, if you continue to play, the odds will become more beneficial to investors than a gambler. You can challenge yourself by researching online casinos podcast before investing in stocks seriously.