Posted on October 24, 2009 - by Aaron Lau

Is Investing Gambling?

Photo by waffler

Gambling is the wagering of money or something of material value on an event with an uncertain outcome with the primary intent of winning additional money and/or material goods.

Investment is holding an asset in a hope for some recurring or capital gains.

We may not realize it, but breaking down to the fundamental level, the definition of these two words are surprisingly similar.

Basically, they both involve money and chance. If what you hope for happens, you win. If it does not, you lose. For a game of “big / small”, you place a bet of big or small and hope the result is in your favor. Similar in the world of investment, there is only 2 outcomes, you make money or you lose money.

So what makes investment different from gambling?

A. The time frame.

In most games at the casino, you will more or less know the results rather instantaneously. Or other types like the lottery, you will know the results at a predetermined time within a fairly short time frame.

Whereas for most investment, you may not know the results until years later and at no predetermined time. Warren Buffet is known to hold his investments for an average of 17 years! Did anyone know immediately that Macdonalds or Coca-Cola would be where they are today when they first started?

Those who treat their investments like placing a bet for an overnight wonder would be viewing investments no different from gambling.

To reduce the risk of timing, the approach of dollar cost averaging can be used. Read more…

Related posts:

1. Personal Finance Part 15 – The Evils of Gambling
2. Investing With A Gambler’s Mentality
3. To Win In Investing, Think About Losing First