(Newswire.net — May 19, 2017) — You hear a lot of people bashing investment in the stock market. These individuals tend to describe Wall Street as a casino, and stock investment as gambling. And while this tends to offend thoughtful traders, these people are not entirely wrong, even if they don’t fully understand what they’re talking about.
There are millions of people who trade stocks with the same knowledge and attitude they would take to a casino. They might consider the stock of a company they’ve heard about in the news, thinking “People seem to really like this company. I bet their stock will go up in value.” While sometimes this can yield good returns, it’s no way to build a career.
This form of trading is speculative. And speculation, at its core, is really not different than gambling. Both pin money on an outcome which the investor/gambler has no real control over.
Let’s contrast this with activities that get lumped together under the umbrella of gambling. Casino and online gambling include many different games and activities. Casino games like slots are games of chance. There is no skill involved, and the player simply hopes that “luck” will carry her to victory. On the other hand, a popular game like Texas Hold’em is a game of skill (though not every player has the necessary knowledge to do well).
Poker games are based on chance. As soon as a knowledgeable player sees the cards revealed in his hand and on the table, he will be able to compute the odds of success with regard to different playing decisions. Good players aren’t gambling in the traditional sense. Instead, they are making calculated risks with careful analysis of different game climates.
This is really no different than the way a value investor approaches the stock market. Value investing is the process by which investors evaluate the financial data of different companies. They determine what the inherent value of a company share is, then compare this price to the price at which the stock is being traded. If the trading price is lower than the inherent value price, then this stock is a bargain.
Of course, if the investor chooses to buy that stock, there is no guarantee that the stock will gain value. The company might implode tomorrow. But based on a careful analysis of the company financials, the investor decides that this is an unlikely scenario. If an investor buys the stock based on that rationale, no one would call that gambling. So what is the difference when an experienced Poker player with pocket Aces goes all in with Ace-Jack-Ace on the flop?
People who try to use money to make more money are always presented with risk-reward opportunities. This is true in the casino and on the trading floor. The way you handle these situations determines the quality of the investment. People who gamble can be as logical as the best investor, and investors can be as speculative as the worst gambler. Be careful with your money, whatever method you choose to increase it, and you’ll probably enjoy great returns.