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. Special Disclaimer This essay is not meant to condone gambling, or to suggest that you cash out your portfolio and become a professional blackjack or poker player. If you expect to double your money quickly, whatever you're doing is probably gambling, even if it happens on Wall Street rather than in Las Vegas.
Gambling would work just as well as investing for financial event planning if gambling games were in your favor. Gambling, on the other hand, is not so clearly making a positive contribution. Furthermore, while it's possible to calculate exact odds for some casino games, this is rarely the case on Wall Street.
There is intelligent speculation as there is intelligent investing.
Similarly, while for most types of gambling the odds are against you, it is possible for the odds to be in your favor. Aren't the odds stacked against them? Investors are risk-averse, while gamblers are risk-seekers. Go ahead, I'll wait here for you.
It implies that a given activity switches from gambling to investing or vice versa as soon as the odds swing past the breakeven point. Professional sports investors devote 12 hours a day, every day, to handicapping sports. However, this difference of speculation and gambling of gamblers as risk-takers applies only to non-professional gamblers, difference of speculation and gambling who visit Atlantic City for a weekend difference of speculation and gambling entertainment purposes.
I haven't returned since then, for several reasons: Some investments involve the ownership of something tangible, but many don't. Did I merely sidestep the ambiguity, and sweep the gray areas and the important exceptions under the rug?
In fact, he has said that "an investment is a speculation that has gone wrong. Perhaps speculators are those who are risk-neutral, while gamblers are risk-seekers and investors are risk-averse. In their book InvestmentsZvi Bodie, Alex Kane, and Alan Marcus argue that "a gamble is 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.
So while venture capital might seem like gambling in that the odds are against the VC firms on any given bet, on average the expected payoff is positive, so the odds in the long run are actually in their favor. To put it another way, investors take only the risks they should take, while gamblers also take some risks they shouldn't take.
Yes, the majority of venture capital investments result in loss, often a total loss of the amount invested. However, the widespread accessibility of cheap online trades has also attracted some people who enjoy betting and view online trading as a new form of entertainment. My hope in pointing this out is to awaken those individuals who are acting like gamblers but who think they're acting like investors.
If you go for all or nothing, you're a gambler. We might choose not to consider them investments because of casino reports poor long-term performance, but we shouldn't choose not to consider them investments simply because they won't ever produce a stream of income.
Of these the foremost are: Investing is based on skill and requires the use of a system based on research, while gambling is based on luck and emotions.
Conclusions So what's my resolution to this definition conundrum? One interesting thing to note is the pattern of exceptions to the attempted characterizations.
What definitions did you come up with? Some of these activities, especially those considered gambling, might not be legal in certain places.
Investors aren't merely betting on which companies will succeed, they're providing the capital those companies need to accomplish their goals. Many professionals bet only on one sport, which bears more than a superficial resemblance to Warren Buffett's idea of staying within one's "circle of competence".
In investing, the odds are in your favor; in gambling, the odds are against you. I'll leave it up to the reader to decide whether gambling is, on the balance, a plus or a minus. For the purposes of the current investigation, we could either reclassify investing-type activities that aren't productive as gambling, or we could consider these to be exceptions to the rule.
It feels right to call such behavior gambling. In fact, whether they realize it or not, their definition reclassifies gambling as speculation when the odds can be sufficiently tipped in the player's favor, such as in professional blackjack or poker, which fits in nicely with argument made in the previous section.