Are you Really Gambling or Investing in Stock Market

Stock market is often made as synonym to gamble as investing money into stock or any other financial asset traded in market is often considered as gambling. Some might consider it investing by knowing some convincing information which might be helpful to hold the stock for particular time period and then sell it at higher price. However, some put money into a stock just by seeing its past returns and on blind expectations of making returns. So, what exactly differentiates investing from gambling? Let’s check out.

Table of Contents

Knowledge

Knowledge always played pivotal role in creating growth for anything. Right from person’s personal career life to an investor’s journey in the stock market. Knowledge plays very important role in fact it is the key differentiator between investing and gambling. A knowledgeable person studies enough the asset in which he is investing from all aspects. An investor analyses the past to forecast the future with appropriate method. Whereas a gambler doesn’t do any of the above before betting on any particular stock. He blindly, puts money into the stock on mere expectation of the price of stock to go up, without knowing the circumstances. One might also feel that the output both are seeking is the same, that is returns. However, the process behind investing and gambling on stock are very much differentiated and so are the results arising out it.

Diversification

A seasoned investor will never put his money in one single asset or single stock, he will diversify into various other asset classes and other stocks too. This helps him minimise the risk on investment and ensures a lower loss in unfavourable market conditions. Whereas, a gambler blindly puts all his money on one bet without assessing the risk associated with it. If you are one of those types, then you are not investing your capital, you are gambling with it and it can lead to serious losses majority of the time. Investing requires patience and perseverance, which bodes well for creating long term wealth. If you are the one investing with technique and method and learning from the mistakes you make throughout the journey you are surely on right path towards making wealth over long term.

Speculations

Whenever, a person puts money into a particular stock with just the motivation of speculation of the prices, he is gambling with the money. Speculation takes a person away from the reality as speculation is a wish which a person wants to happen exactly, he wishes. Hence, gambling is most risky and majority of the time it ends up in losing money as reality is always different from speculation. Whereas, investing is more aligned towards reality and can be examined with empirical evidences happened in the past. For example, a person invests on a stock based on some positive fundamental news which convinces him or gives confidence about the stock price to move upwards over a period of time. Here the speculation of price to go upwards has some base to it and can be back tested in the past too. But if you don’t have any such conviction about the stock and just wish the price to go up, then you are pure gambling with your money.

Calculated vs Uncalculated Risks

Risks are always associated with any type of investment, even the safest of investment class like bank deposit or just keeping money in safety box has its own risks. If those are understood and calculated then loss arising out of it can be mitigated. The people who are wise enough to accept the risk associated with the investment take necessary decisions and minimise those risk end up making good returns over a period of time. But there are those too who don’t accept the risks and completely ignore the fact that risk and returns are two sides of the same coin end up losing more money. Such kind of uncalculated decisions are made by person who goes behind speculation and ignores the risk completely is purely gambling with his money. If you too don’t calculate the risk associated with the investment and bet on stock, then you gambling with your money and not investing.

Goals

Goals are important in investment, like it is important to know the destination of the journey. Investing involves goals which are always important to choose the investment asset to achieve that goal. While gambling doesn’t involve any goals, it involves more of emotion and wish that the speculation should come right. Like any journey without destination is waste of time and fuel, similarly a gambling your money on stock without any goal or target too is waste as there are chances of losing it more. Where as in investing, a person with pre-defined goals invests in right asset class with calculated risk achieves the target or goal easily. Whenever, a person invests without any target or pre-defined goal he ignores the risk of losing the money, which in long term might end up losing whole capital.

Lastly, there are many parallels drawn between gambling and investing which usually are alike. However, gambling at the end does not create wealth, it does not make you knowledgeable, it does not make you disciplined, it does only give you a sense of satisfaction or disappoint according to the results drawn from the gambling. In real life too gambling is considered as entertainment and not a method of wealth creation. Wealth can only be created through investing systematically by calculating risk, examining all the factors prior and waiting patiently for the returns to arise. Investing is long term process and hence the returns arising out of it too are steady and consistent. Where as in gambling is pure game based on probabilities, which we expect every time to be right.

If you are one of those early investors who have mistaken investing and are actually gambling with your money, it is time you should start fresh with proper methodology and knowledge. If you are struggling with decision making, try reaching out an investment advisor who will guide you on the right path and will also remove mis-conceptions you had of the market. Even while investing you might some time feel like you are gambling your money, but you should make effort to know and get convinced about the investment you have made in. This will help you in getting new experience altogether, even if you are wrong some-time but your experience will never go in vain, it will always help you in your future.