In investing, the odds are in your favor; in gambling, the odds are against you. Are you not doing it in order to gain a financial return?
As a result, delayed gratification is implied. Similarly, there's a big difference between buying exotic derivatives to hedge against an existing risk or position and buying the same derivatives because you saw a web site touting them. Similarly, you can change the world in a small way by investing in companies you believe in, such as socially or environmentally conscious firms and mutual funds, or biotech companies that are working on diseases that might affect you or someone close to you.
Gambling is entertainment, investing is business. Investors aren't merely betting on which companies will succeed, they're providing the capital those companies need to accomplish their goals.
In order to differentiate between the two, we should start by defining them. The internet has enabled online brokerages and other financial web sites to revolutionize retail investing, which on the balance is a tremendous benefit to both individual investors and the economy in general.
Looking to the financial markets, one could make the case that people who gamble in this realm do serve a function, by adding to the market's depth, liquidity, transparency, and efficiency.
And this is certainly true of some types of investing. Operations not meeting these requirements are speculative.
A lot of so-called investors don't do nearly as much research as they should. There are additional problems with this attempted characterization of gambling as a losing bet and investing as a winning bet. There are a few investments that don't entail risk, such as fixed annuities and government bonds held to maturity, but even those have inflation risk.
To put it another way, investors take only the risks they should take, while gamblers also take some risks they shouldn't take. If you squint just right, the steadfast newscasters of CNBC appear to be play-by-play announcers, calling the game for U. To stake or risk money, or anything of value, on the outcome of something involving chance.
Compulsive gambling has been correctly identified as a problem, and organizations like Gamblers Anonymous are helping people cope with the problem.
And perhaps the same is true of stock exchanges. But with that said, it would be beneficial if everyone could agree on what the terms mean, so we don't need to make our definitions explicit every time we want to use them. In their book InvestmentsZvi Bodie, Alex Kane, and Alan Marcus argue that "a gamble markets gambling the assumption of risk for no purpose but enjoyment of the risk itself, whereas speculation is undertaken in spite of the risk involved because one perceives a favorable risk-return trade-off.
On the other hand, buying in the belief that a stock's price will eventually reflect its value, with the plan of holding as long as it takes for this to happen, is more like investing.
Gambling does tend to help local economies, but also usually brings with it well-documented unpleasant side effects. Perhaps investing addiction is not getting the attention it deserves because most people are attaching to it all the positive connotations of investing and none of the negative connotations of gambling.