If You Think the Market is a Casino, You’re Doing It Wrong

is the stock market a casino

In 2019, MagnifyMoney surveyed 1,082 Americans. The survey asked questions of gamblers (people who had played at a casino, bought a lottery ticket, or bet on sports). It surveyed “active investors” and defined them as people who buy or sell in the market at least once a month. And it defined a final survey group as passive investors or people who traded less frequently than their active counterparts.

The survey revealed a few fascinating numbers. First, 55% of the entire pool of respondents said they believe investing in the market to be as risky as gambling in a casino. Next, 25% of respondents said they believe the odds of making money in the market are better than making money from gambling (just 1 in 10 believe the opposite to be true). Finally, gamblers had far more in common with active investors than passive ones. Roughly 57% of gamblers were active investors, while only 30% of non-gamblers. 

On the surface, it would appear that gamblers and active investors are always looking for action. About 45% of active investors had gambled money without telling their spouses. In the same survey, 45% of active investors also said they kept a secret investment account from their families.

All this data proves, however, is that some people might have a gambling problem. The perception among that 55% of people who compare the two doesn’t mean anything. Except for the fact that more than half of the people in the survey are grossly misinformed…

Gambling or Not

Yes, gambling and stock market investments do involve risk. And both should involve an essential principle in reducing losses while maximizing gains. But they are distinctly different from one another. Here are four reasons why stock investing and gambling are NOT the same thing.

1. Different Goals

Investing is the practice of allocating money to assets with the expectation of two results. First is the potential for price appreciation in the asset. The second is the opportunity to generate income (and/or earnings) from the investment. Meanwhile, gambling is typically a Zero-Sum game. There is a clearly defined winner and a clearly defined loser. In addition, gambling does not generate cash flow or dividends like many stocks can provide over the long term.

2. Probabilities

Believe it or not, the odds (or probabilities) of success for investors are high. The stock market has a historical bias toward the upside. This means that historically, the markets provide a positive return and allow investors to achieve appreciation in the underlying asset. Investors typically look at historical patterns and data to determine the probabilities of success. Meanwhile, hitting the casino does rely heavily on chance, and the so-called market makers (or bookies) will ensure that odds do not overly favor a particular side of a bet. In Las Vegas, table games typically provide odds that favor the house (Betting on Red/Black in Roulette doesn’t even provide neutral odds for gamblers).

3. Risk Mitigation

Bet $1,000 on the Dallas Cowboys and lose? Well, you’re out of money. But if you invest $1,000 into a company and the stock starts to decline, you have various strategies that you can use to mitigate losses or even turn that loss into a gain. You can use options strategies to reduce risk or generate additional income. You can set a trailing stop to ensure that you don’t lose any more than 10%, 15%, or any preset level of your principle.

4. Access to Information

Finally, one of the most overlooked differences between gambling in the casino and stock market investing is access to information. Right now, you can get access to a treasure trove of information on almost every company you want to buy and own. Companies provide up-to-date information once a quarter on their earnings. Companies file updates with the government on leadership changes, changes in ownership, major events that might impact the stock, and much more.

Good luck finding out until the final hour before a sports game whether or not a star player will be playing. And when you sit down at a poker table or a blackjack table, you have no insight into what can or will happen at that table in the coming hours. People might say that you’re on a hot run, or they might say that a dealer is hot. However, you have absolutely no way to quantify or verify any of this information.

If you’re worried about a broad market selloff or the threat of a downtrend in the market, remember that your losses are not absolute.

Still Think the Market is your Casino?

Let me state one last thing. Gambling is risky. Not investing is ALSO risky. If you’re keeping cash in a savings account, you lose the real opportunity for financial growth that prudent investing can offer.

We witnessed a remarkable event last year. Scared investors poured out of the market. They never bought back in despite one of the fastest market rebounds in history. And now… you can see the regret in their eyes when they talk about it. We will talk much more about being active in the markets.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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