Go all out: investment and gambling

Investment and gambling: an overview

When discussing finances, how many times have you heard someone say “investing in the stock market is like gambling in a casino”? It is true that both investment and gambling involve risks and choices—especially capital risks that are hopeful for future profits. But gambling is usually a short-lived activity, and stock investment can last a lifetime. In addition, on average, the expected return of gamblers is negative in the long run. On the other hand, in the long run, investing in the stock market usually brings positive average expected returns.

Key points

  • Both investing and gambling involve risking capital for profit.
  • In gambling and investing, a key principle is to minimize risks while maximizing returns.
  • Compared with investors, gamblers have fewer ways to mitigate losses.
  • Compared with gamblers, investors have more sources of relevant information.
  • Over time, the odds will be beneficial to you as an investor, rather than beneficial to you as a gambler.


Investment is the act of putting money or capital into assets (such as stocks) in the hope of generating income or profit. Expecting returns in the form of income or price appreciation is the core premise of investment. Risk and return go hand in hand in investment; low risk usually means low expected return, and high return usually comes with high risk.

Investors must always decide how much risk they are willing to take. Some traders usually assume a risk of 2-5% of their capital base in any given transaction. Long-term investors continue to hear about the advantages of diversifying different asset classes. However, within the same asset class, the risk and return expectations can vary greatly, especially if it is a large asset class, just like a stock class. For example, the risk-reward profile of a blue chip stock traded on the New York Stock Exchange is very different from that of a micro stock traded on a small exchange.

This is essentially an investment risk management strategy: spreading your capital into different assets or different types of assets in the same category may help minimize potential losses.

In order to improve the performance of their holdings, some investors study trading patterns by interpreting stock charts. Stock market technicians try to use charts to collect the future trend of stocks. This field of research devoted to analyzing charts is often referred to as technical analysis.

Investment returns may be affected by the amount of commission investors must pay to brokers to buy and sell stocks on their behalf.

When you gamble, you have nothing, but when you invest in stocks, you own the shares of the target company; in fact, some companies actually compensate you for ownership in the form of stock dividends.


Gambling is defined as betting under unexpected circumstances. Also called betting or placing a bet, this means taking a risk on an event where the outcome is uncertain and seriously involves chance.

Like investors, gamblers must carefully weigh the amount of capital they want to “invest”. In some card games, the pot odds are a way of assessing your risk capital and risk reward: the amount of the call compared to the amount already in the pot. If the odds are favorable, the player is more likely to “call” the bet.

Most professional gamblers are very proficient in risk management. They study the history of a player or team, or the pedigree and record of a horse. In order to seek advantage, card players usually look for clues from other players at the table; great poker players can remember what their opponents have back bets with 20 hands. They also study opponents’ behavior and betting patterns, hoping to obtain useful information.

In casino gambling, bettors play against “houses”. In sports betting and lotteries (the two most common “gambling” activities that ordinary people participate in), bettors are betting on each other in a sense because the number of players helps determine the odds. For example, in horse racing, bets are actually bets on other bettors: the odds for each horse depend on the amount bet on that horse, and it keeps changing until the game really starts.

Generally speaking, the odds of gamblers are additive: the probability of losing an investment is usually higher than the probability of winning. If the gambler must invest extra money (called “points”) in addition to the bet, the gambler wins or loses, and the gambler’s chances of making a profit are also reduced. Points are equivalent to broker commissions or transaction fees paid by investors.

Investment and gambling: the main difference

In gambling and investing, a key principle is to minimize risks while maximizing profits. But when it comes to gambling, the dealer always has an advantage-the longer the player plays, the greater the advantage.

In contrast, the stock market has continued to appreciate in the long run. This does not mean that gamblers will never win the jackpot, nor does it mean that stock investors will always enjoy positive returns. Quite simply, over time, if you continue to play, the odds will benefit you as an investor, not as a gambler.

Liz Ann Sonders, Managing Director and Chief Investment Strategist of Charles Schwab, said: “Neither entry nor exit is an investment strategy. Period. It’s just a gamble on time. Over time As time goes by, investment should always be a disciplined process.”

Reduce loss

Another major difference between investing and gambling: You have little way to limit losses. If you pay $10 a week for the NFL office pool and you do not win, then you have spent all your funds. When betting on any pure gambling activity, there is no strategy to mitigate losses. New innovations have been added to online sports betting to help gamblers reduce risks when betting on the game, such as in-game improvements, which can be changed throughout the game, and partial redemption options, if the result seems to be able to restore part of the bet against the most OK.

In contrast, stock investors and traders have multiple options to prevent the total loss of risk capital. Setting a stop loss for your stock investment is an easy way to avoid excessive risk. If your stock drops 10% below its purchase price, you have the opportunity to sell the stock to someone else while still retaining 90% of your risk capital. However, if you bet $100 on the Jacksonville Jaguars to win the Super Bowl this year, then if they enter the Super Bowl, you will not be able to recover some of the funds. Even if they win the Super Bowl, don’t forget the distribution of points: if the team’s winning points do not exceed the points given by the bettor, the bet is lost.

Time factor

Another major difference between these two activities has to do with the concept of time. Gambling is a time-bound event, and investment in a company can last for several years. For gambling, once the game or game or hand is over, your chances to profit from the bet come and go. You either win or lose your capital.

On the other hand, stock investment can bring time returns. Investors who buy shares of companies that pay dividends are actually rewarded for risking dollars. As long as you hold their stock, the company will pay you no matter what happens to your venture capital. Savvy investors realize that dividend returns are a key component of making long-term stocks.

Get information

Both stock investors and gamblers look back to the past and study historical performance and current behavior to improve their chances of winning. In the field of gambling and stock investment, information is a precious commodity. But there are differences in the availability of information.

Stock and company information are available to the public at any time. Before investing capital, you can directly or through a research analyst report to research and research the company’s earnings, financial ratios and management team. Stock traders who trade hundreds of times a day can use the day’s activities to help make future decisions.

In contrast, if you sit at a blackjack table in Las Vegas, you won’t be able to understand what happened at that particular table an hour, a day, or a week ago. You may hear that the table is hot or cold, but this information cannot be quantified.


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