What makes the stock market different than gambling?

Question

I can make educated guesses and research my horses at the race track, and you can get 20 bucks back from only investing 1 dollar, easily. You'll be hard pressed to get that return in 1 day at the stock market. And who want's to gamble in the long term? You invest $10,000 only to have the broker tell you that you MIGHT get a good return? Find me a broker who will tell you NOT to buy stock and I'll give you a $100.

Answer 1

The biggest difference is that investments in stock have a positive expectation, while all forms of legal gambling have a negative expectation. Granted -- if you are particularly good at handicapping horses or particularly good at playing poker -- then there is a positive expectation for you (and a larger negative expectation for someone else).

While you can get a 20-1 payoff on a horse, the volatility is a lot higher than the market. Reward is related to risk.

A better argument can be made that the options market is like gambling. However, this argument is mitigated by the fact that derivative securities can be used to hedge other positions.

Answer 2

Many people say the only difference between investing and gambling is wealth/success of the person doing it. When rich people do it it is investing when poor people do it it is gambling.

Seriously, the stock market involves securities where you are buying a small portion of an actual company. Plus, after the IPO the value of the stock is based on the most recent traded values in the market. In other words, the market price represnts the current sales prices for the item across all investors buying that stock. In gambling, the value of a bet before the race or game is completed is determined solely by the house/casino not the sum total of all bettors making a similar bet. Also, after the game/race is over the losing bet has no value whatsoever. In the stock market, the stock still retains some value until the company goes out of business.

Answer 3

Don't equate the stock market with gambling. If you gamble, you will lose money -- maybe not every single time, but, well… pretty much every single time. How else do you think corporations can afford to build scale replicas of New York City on the Las Vegas Strip? The truth is that casinos pay out only 90% of every dollar that they take in. Oh, sure, you might win a hand or two of baccarat. But in the long term, the house will gouge you for 10%.

By contrast, the stock market offers odds that are in your favor. Since 1926, the market has gained an average of 10.5% per year. That includes the many crashes along the way. In fact, if you look at a long-term graph of the market, those crashes look like mere blips on a steep uphill climb.

To achieve simple market returns, invest in an index fund that mimics the performance of the S&P 500. To beat the market over the long term, consider investing in some of the great companies whose products you use every day. If you invested $4000 in Coca-Cola in 1919, your investment would now be worth more than $600 million. Okay, no fair; you weren't alive in 1919. Flash forward to 1976. Gap Inc. has averaged more than 26% annual growth during its twenty-two years in the public markets. During that time, a $20,000 investment in Gap has grown to more than $3.2 million. Weren't alive in 1976? We won't even begin to torture you with Microsoft's performance since 1987.

Investing isn't always rosy. You will lose money. Even the best investors make the wrong calls. But at least they're betting on a growing business through an accredited financial institution that's insured by the federal government. When you gamble, you slip fifty bucks to some dude named "Izzy" who says his nervous tic comes from "sweatin' the fuzz." We're not sure this is the fellow your parents had in mind when they told you you'd be meeting interesting people at college.

If gamble you must, do it for fun (or sociology). Invest for profit.

Answer 4

So I shell out a thousand or two in cash for a casino visit and a matching amount to sink into just any old stock before I leave. After my trip to Vegas, my pockets will likely be empty, but I still have that stock. I still own a piece of a store chain or a lumber producer or an oil service company--even if the price has dropped a lot.

If I'm just day trading, yeah there is an enormous amount of gambling, but it is more like the gamble I make when I go see a customer for the product or service I sell. He may like me, but the product stinks. He may not like me but love my product, yet the price stinks. He may like me and the price but has no need for it right now. How do I know? I've got to play the game--I've got to see customers, or in the case of the stocks, I've got to pony up some cash and see if this which looks like it will fly will actually get off the ground. It isn't the same thing as a roll of the dice even if aspects do resemble it.

Answer 5

Well let's see. My father invested $900 into stocks in my name about 25 years ago. Those stocks are now worth about $124,000. Sure it took time for that to happen but one year ago those stocks were worth $119,000. Not to mention the fact that I get quarterly dividend checks of $600.

Try throwing $900 on the blackjack table. The second you lose it's worthless. With stocks the value goes up and down, but it always has some value.

Quite simply, the stock market is less risky and more likely to pay off. If you stay in for the long run, you'll see huge returns.

Answer 6

Advantages accrueing to the Citizen of countries whose economies are run scientifically meaning more rationaly is resource allocation and incentive mechanism. If you work very thoroughly on something you are bound to get the resource allocated to you before someone else who do it naively. So is incentives, if you work more hard and produce valuable results or if you are more initiated then you should get more incentives.
In the same vain stock market allocates resources to companies who work more efficiently through educated investors who are prepared to accept it. Stock market is also not a zero sum game.
Gambling is different in the sense it does not allocate resources efficiently. Gambling is a zero sum game.

Answer 7

Historically, if you invest in the stock market, you will see gains. 10.5% per year over the past 75 years.

Historically, if you gamble at a casino, you WILL lose. You need to be lucky to win at a casino.

Individuals stocks, however, are very risky. Play it safe and buy mutual funds.

Answer 8

Penny stocks are loosely categorized companies with share prices of below $5 and with market caps of under $200 million. They are sometimes referred to as "the slot machines of the equity market" because of the money involved. There may be a good place for penny stocks in the portfolio of an experienced, advanced investor, however, if you follow this guide you will learn the most efficient strategies https://tr.im/e3f14

Answer 9

Stock market is a legal form of gambling

Answer 10

it is gambling, watch cnbc , they say "bet" all the time . ie (traders are betting that the oil futures" stuff like that is commonly said.

A lot of pro-market people will say "historically teh stock market will return you x% , much better than real estate , bonds etc" - the difference is that stocks should pay out a much higher %, no ones ever lost money in safe CD's or muni bonds etc.