What’s the difference between trading stocks and gambling?

WithTheLightsOut: What’s the difference between trading stocks and gambling?
I know some people are good at stocks but the fact is that it’s never guaranteed anything. Even the best can lose. So what I want to know is, how is this any different from gambling, besides the name. The principle is the same thing. My friend knew someone at work who lost millions in the stock market in one weekend and hung himself. I’m being dead serious, it’s dangerous just like gambling is. I’m pretty sure there are people addicted to it (stock markets). It IS gambling period . So why don’t they call it that?

Answers and Views:

Answer by got it
Lets look at a simple example that may help you.

I think GE is going to go up in value, so i buy 100 shares at 14.00 so I have a 1400 investment in GE. There is value to those shares, you see lots of assets, a company, several product divisions. The chance that it will be at zero tomorrow is probably zero as well.

I deal you two cards and me two cards. The bet is 1400 that my hand is better than your hand. Where is the value here? there is a way to actually figure it out, the value is a 50% chance you will win. So in theory, it is worth 700 right now. (get it, you or i will win, not both of us).
So, i second after each of the above investments, one is still woth 1400, the ge stock, the other is instantly worth only 700.

I hope this did not shoot over your head. I’m trying to show you that buying stock in a good company has risk, but is not as dangerous as gambling. I hope this helps you

Answer by wg0z
in investing there is not supposed to be any random chance,
or at least very little. random chance is DISCOURAGED.
in gambling random chance is DESIRED, especially by the house.

Answer by Brother Otter
Casino gambling is pure chance. Yes, some games like Texas Holdem involve strategy, but at the end of the day Lady Luck rules.

Investing isn’t completely playing the odds. There are indeed factors that are beyond an individual investor’s control, and even the best research can’t turn up any more than what’s in the published literature. However, companies care about their stock value and any well run one will do what they can to protect it.

Long term, prudent investors have consistently made money in the market.
Long term dedicated gamblers have consistenly lost money at casinos (how do you think they pay for those big buildings, staff, and all that neon?)

Answer by Beau.Gus
Gambling is a “zero-sum” activity, in which the same number of dollars come out (in winnings for winners and profits for the overseeing agency) as went in (in bets).

Investment activity can actually “create new money” by funding growth of the business that collects the initial investment. Murray the Bookie takes your dollar (and a hundred others), and pays back thirty bucks to the folks whose horse won the race. Belinda the businesswoman takes your dollar (and a hundred others) in exchange for a share, then she spends the money building a business that creates jobs for folks (like you), make a healthy profit for herself, and pays you back a fraction of her profits each quarter to each shareholder as a dividend.

Any poor idiot who “lost millions in the stock market in one weekend” was probably shorting stocks (which IS “gambling”).

If you invest in a broad basket of stocks, it is close to impossible to lose money over any long-term period, unless you do it deliberately; over the last 70 years, the broader market has risen from roughly 300 to roughly 10,000, at a long-term average rate of about 7% a year. It always will, until we abolish progress, and humans stop having new ideas and wanting stuff!

Answer by Grumple
They are similar but stocks are an investment in a company. You are speculating in both cases though.

A better comparison is gambling and insurance…

Answer by zygote222
You are right that gambling and stock market investing have much in common. For an example of someone gambling (and losing) his entire life savings on one single investment, see the link below.

To the extent that there is a discernible difference between investing and gambling, it has to do with the fact that historically there has been a pronounced upward trend in stock market indexes over long time periods. This upward bias shifts the odds in favor of the investor, whereas gambling in a casino favors the house. The standard investment advice of “Be a long term investor. Buy and hold index funds.” is nothing more than an attempt to capture the hypothetical upward movement in the index, while at the same time avoiding the risk of unnecessary losses that might happen when you make a few ill-timed bets on individual stocks.

In general this advice works fairly well. It is only during periods such as we’ve just experienced, when there is no noticeable long term upward trend in the stock indexes, that people start questioning conventional wisdom.

Answer by jeff410
Stocks have intrinsic value. There is no intrinsic value in gambling. You dont own anything in gambling.

Investors own the casino. Gamblers play in the casino.

In gambling you either win, or lose all of what you bet.. And if you lose thats a sunk cost you cant get back. You have to come up with more money to have a chance of making any again. With investing its possible to lose all your money. But its also quite possible you may lose part of it temporarily. And probable to gain it back plus more without adding more money.

Expected return. The more you gamble the more likely you are to lose in the end.. The probability in investing is that you will make money in the long term.

Answer by Thor
You need to distinguish between “trading” and “investing”.

I think trading short term, or day trading, is gambling. Trading very short term is a zero sum game.

Investing benefits from the fact companies make money (normally… haha?).

I am investor but when opportunities arise, I will trade. I do buy and sell stocks to “invest” in the best opportunities. But I don’t consider that “trading”.

For instance at the market high in June ’07 I saw it as risky and got out for a year and half. But the day trader would have been in there every day trying to pick up a dollar here and there while the Bear Market nibbled away all their money.

Answer by numbaONE!!!
actually the best of the best dont lose with the right research. check warren buffett’s track record for his first thirty years. never a down year, kicked the crap out of the S&P 500 over the same period.

the problem with the stock market is that it is focused on short-term results. as a byproduct of this short-term tunnel vision, stock prices fluctuate unpredictably and you can bet on the short-term price changes for a profit. anything short-term, however, is gambling. there is no other way to describe it. there are exceptions, such as arbitrage, but in general the short-term is always gambling. now, if you analyze a company to the depth of which buffett or phil fisher do and you buy in at below intrinsic value, you can never go wrong if you continuously follow your company. it requires a lot of education, self-discipline, and patience for the stock market to offer up bargain prices.

if you invest long-term in a company which meets the requirements described by the financial titans of warren buffett, benjamin graham, & phil fisher you cannot lose.

Answer by Gerry, Louisiana
There is a big difference. Gambling is just playing by hazard, but trading stocks is about learning how to take advantage of trends and cycles.

If you know how to trade stocks, it’s like playing black jack by counting. And the best thing is that this is very legal.

Answer by Monty S
you play either one and you could lose money .