Last week I was having a conversation with a friend and he said that he doesn’t invest. I asked why. His response, “Investing is like gambling.”
I replied that you should love investing because you love to gamble. We both laughed.
That conversation made me think that there still are people who view investing just like they view gambling. And the two couldn’t be further from each other.
Gambling is betting that you will win something without any real knowledge of what your odds are or how much risk you're going to take on to get there. It serves an immediate gratification. A winner or loser is decided in that moment. The longer you stick with it, the worse your odds become. The house (casino) always has an edge, a mathematical edge that increases the longer someone plays.
Investing is the opposite. The longer someone stays invested, the better the odds are in your favor. It’s time-rewarding.
As the stock market rises it can benefit multiple parties. It’s not a zero sum game like gambling. In gambling there is always a winner and loser. The money goes over to the winner every time.
Day trading with stocks fall in line with gambling. You’re speculating, not investing. I wrote a post about my experience day trading here.
Investing isn't about quick trades, but about staying invested and having a long-term time horizon. Yes, investing always involves risk, because markets go down and companies sometimes go through rough patches. But experienced, disciplined investors know how to minimize those risks with a combination of proper asset allocation, stop losses, diversification and patience.
Investing in stocks is very different from gambling for one big reason. Buying stocks is buying shares in a company. You’re becoming an owner of a company.
You can research different companies and make an informed decision based on their actual financial data. A company’s price-to-earnings (PE) ratio, earnings per share (EPS), debt, management team, growth potential and more is all readily accessible. You can read stock analyst reports, conference calls and company filings.
This all helps you to thoroughly understand a company's financials, management, competition and then you can consider how that company fits into your overall portfolio. Without this information like gambling, you’re just rolling the dice every time you trade.
Do casinos disclose how many times a certain red or black number has won? What’s a players winning percentage is against each dealer? How often does each slot machine or table payout? This is why they always refer to the house having the advantage. They have all the information.
The time frame for putting money into the stock market is with a long view. The long view could be your entire life.
Warren Buffett shared his opinion on this at the Berkshire Hathaway shareholders meeting in 2017.
“People like action and they like to gamble. If they think there’s easy money to be made, you get a rush. For a while, it will be self-fulfilling and create new converts, until the day of reckoning comes.”
Buffett is known for buying and holding stocks for decades. Below are his longest held stocks. Coca-Cola being the longest at 34 years.
If you want to follow what one of the greatest investors of all-time does, focus on the long-term. Time and history are on your side. Gamblers or speculators have a focus on the short term. We already know who wins.
The Coffee Table ☕
Sam Ro who writes
had a post of charts, charts and more charts. Just a ton of great data to look over and consider. Some stock market charts to consider as we look forwardMichael Antonelli wrote Now What on his blog Bull & Baird. I always enjoy Michael’s level-headed approach, never too high or too low outlook on the market and life.
To go with the long-term investing theme of this post. Ben Carlson wrote a fitting post entitled The Long-Term Wins. He speaks patience and being a long-term investor with some good charts.
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