Investing in shares = Gambling

Scarpacci

Gambling may be an accurate description of some of the shorter term investing styles, such as forex trading or spread betting etc, but I don't think it accurately describes investing in companies (a better description than investing in shares). The time horizon is important as is what you're hitching your wagon to, so to speak.

By investing in companies, you are aligning your financial interest to that of the underlying companies which, ideally, will be consistently earning a return on its capital. A true investor isn't betting on the share price, disassociated from the company, going in one direction or another. They're aligning their financial interests, to the amount they invest, to the financial engine of a company. There's an argument by investing in self-chosen shares or in a managed fund, you're really just "betting" on your own skill or that of a manager, but even there you must remember that for the duration of the bet you do actually own an underlying asset which can produce a return.

That's markedly different from aligning your financial interest with a horse or dog that will run one race and thus determine whether or not you make or lose money. There's no consistent compounding effect of an underlying asset there. Just as there is no underlying asset when you put money into something which is literally a game of chance - a roll of the dice. You don't "own" the dice while you gamble, and even if you did the asset itself produces no returns. When you invest in shares, you own a part of a company that is out there making money consistently (broadly speaking).

The closest horse racing, for example, would come to investing is if each bet entitled you to a share of the horse's future return. Indeed, some rich people do invest their money in owning a race horse. They own an asset that has a chance of producing an underlying return, irrespective of what somebody else is willing to pay out for it. A bet does not. Farmland does. A bale of hay does not. Shares in a company do. A barrel of oil does not.

There are investment strategies, whether you're talking about the private investor or professionals, out there that do reflect gambling - commodity trading for example - but that is in cases where there's no underlying return from holding the asset, merely the speculation over where its price goes.

Linton

savings_my_hobby wrote: »

Correct there is no risk free way to enhance or even maintain stored wealth. so then you must agree that you are taking a risk in investing therefore a gamble. All we are talking about is weather it is a gamble to invest. Yes as I eluded to in a previous post there are riskier ways of gaining wealth we agree on that. Surely we agree on investing IS A gamble by the very definition of the word?

You could regard investing as a gamble, but then so are very many other things. Saving is a gamble. Keeping your wealth under your bed is a gamble. Climbing the stairs is a gamble. About the only thing that isnt a gamble is life - you are certainly going to die. However this isnt very fruitful. Its rather more useful to determine the level of risk and benefit in each possible activity and then decide which ones make sense for you to do.

My definition of a gamble is one where the reward is much higher than the stake but the chance of failure is very high, certainly 50% or often much more. With that definition sensible investing isnt a gamble.

Linton

berbastrike wrote: »

What is the difference between spread betting and buying shares? Same risks, yet spread betting is defined as true gambling

Spread betting is different in two ways...

- it's worse than a zero sum game if you take into account the promoter's cut. So on average you lose.
- It's short term. I dont know much about spread betting, but I guess you cant do it over a 20 year timescale.

Thrugelmir

berbastrike wrote: »

What is the difference between spread betting and buying shares? Same risks, yet spread betting is defined as true gambling

Leverage. Small stake wagered however the outcome magnifies both gains and losses.

System

Linton wrote: »

Spread betting is different in two ways...

- it's worse than a zero sum game if you take into account the promoter's cut. So on average you lose.
- It's short term. I dont know much about spread betting, but I guess you cant do it over a 20 year timescale.

And buying and selling shares is free of charge? A financial advisor was going to charge me 3% for any sum over £100k "invested"!

Thrugelmir

berbastrike wrote: »

And buying and selling shares is free of charge? A financial advisor was going to charge me 3% for any sum over £100k "invested"!

Do you expect the FA to work for free?

Use your own time instead if you don't wish to incur fees.

Linton

berbastrike wrote: »

And buying and selling shares is free of charge? A financial advisor was going to charge me 3% for any sum over £100k "invested"!

You could get it for less. But even with such a one-off charge you would still expect to significantly beat bank savings over say a 20 year period.

jimjames

berbastrike wrote: »

And buying and selling shares is free of charge? A financial advisor was going to charge me 3% for any sum over £100k "invested"!

My funds cost around 0.1- 0.2% pa. That's it.

It's certainly not gambling. Spread betting is, especially if it's uncapped and you can lose more than your initial stake.

It does appear that you don't understand risk and investing

System

Linton wrote: »

You could get it for less. But even with such a one-off charge you would still expect to significantly beat bank savings over say a 20 year period.

And what if you had invested in Tesco in 1995. Their share price has gone done. And thats not to mention the inflation.

If I had invested money in the FTSE 100 in 2005...the FTSE price is around the same today....

10 years...0 gain

savings_my_hobby

Linton wrote: »

My definition of a gamble is one where the reward is much higher than the stake but the chance of failure is very high, certainly 50% or often much more. With that definition sensible investing isnt a gamble.

Unfortunately we cant choose are own definitions of words that is for the lexicographers.

As I have stated one definition of gamble is "to take a risk in the hope of gaining an advantage or a benefit". even sensible investing poses a risk as you have admitted.

Of course there are bigger risks, but all the time investing presents a risk it is impossible to to come to any other conclusion that it is therefore a gamble by definition of the word gamble.