Investing vs. Gambling

By Chris Perras, Chief Investment Officer.

Is the Stock Market Gambling?

Over the years, we’ve heard from a lot of skeptical people that regard investing in the public stock markets as just another form of gambling. Unfortunately, this misinformed view could keep people from enjoying the financial rewards of thoughtful investment in the United States economy, and potentially impact their financial comfort in retirement. Over the long term, investing in U.S. corporations and the U.S. economy has been very profitable, and Oak Harvest believes it is also the best way for everyday people to advance their savings and wealth.

Although there are some shallow likenesses between the two concepts, a definition of the terms, investing and gambling, helps reveal the principle differences between them. A standard definition of the term “invest,” is to put money to use, by purchasing or spending, on something offering positive returns, especially interest or income. The same dictionary defines “gamble” as follows: playing any game of chance for stakes.

While these two definitions may appear the same, they are not at all.  In fact, over long periods of times, the outcomes of investing and gambling are almost certain to be 180 degree opposites from each other.  In casino gambling, the “house,” or casino, has a built-in mathematical advantage over the gambler.  The “odds” of winning vary slightly from game to game (blackjack, sports gambling, slot machines) and casino to casino, but these odds reflect the gambler’s built-in disadvantage when playing these games.  Luck may favor the gambler for a single bet or a string of bets, known as a “run”, but ultimately, math and statistics win out in favor of the “house” and the gambler loses.  When you gamble, you own nothing, and you have everything to lose.

When you invest in the stock market, you ultimately own a share or shares of the companies in which you are invested.  If the company is profitable and issues dividends over time, you benefit.  If the price of the stock or index goes up over time as it grows earnings or the US economy grows, you benefit.  Despite periodic highs and lows, the US stock market has been profitable over the long term. Why? Because the US economy grows!  Does it grow linearly? No. Does it grow every year? No.  Is its growth guaranteed?  No.

However, as you can see throughout our timeline, despite some of the most shocking and disruptive events over the last two centuries, the stock market has risen dramatically.

In contrast, had you sat yourself at a gambling table, sports book, or race track for any period longer than a “vacation stay”, you would most likely lose all your money. Why? Because, that’s the gambling industry’s business model!  The longer you gamble, the higher your likelihood of losing everything. This is the diametric opposite of investing, in which the longer your investing time horizon, the better your odds of making money. We firmly believe that gambling is not comparable to investing in the stock market.

Our Investment Team, together with your advisor, invests your savings systematically, based on our Core4 framework. As fiduciaries, we invest your funds with care and professional expertise knowing that even though it may never be possible to be “perfect investors,” we have the power of the US economy, its growth, and the compounding of markets behind our investment tools, methodologies, and process.

Views and opinions are subject to change without notice. Data cited is believed to be reliable but is not guaranteed. This article is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services. Investing involves risk and past performance does not guarantee future return.