Gambling Is Entertainment, Stock Market Investing Is Not!

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Paris: Las VegasI’m a fan of the casinos. I don’t know whether its the pumped in oxygen, the bright lights, the sounds of excitement and joy, or the free drinks flowing throughout… but I love going to casinos. Sometimes I win, sometimes I lose, but I almost always have a good time putting my hard earned money on a felt table and seeing if it’ll grow and multiply. When I go to casinos, I usually bring a set amount I’m willing to lose, say a few hundred bucks, and then I enjoy myself. I understand that when I go to a casino, I’m there to have a good time; I’m not there to make money.

Sadly, the stock market is nothing like that. It’s pressing a few keys on your keyboard or clicking a few buttons with your mouse. The transactions happen with no fanfare, there is often little anticipation, yet if you try to time the market or day-trade… you’re essentially gambling. Why would anyone gamble if you can’t at least get some free drinks out of it?

What always surprises me is that so many smart people try to play the stock market as if it were a game at a casino. People try to time the market by buying it on the way up and selling at the peak. People try to sell their shares when the market is going down so they can cut their losses or re-buy later. It’s not as if the vast majority of experts aren’t advising against it. The latest is the manager of Yale’s endowment, David F. Swensen, who says you should keep things simple by advising that you “use index funds, exchange-traded funds and other low-cost instruments, and stick to your long-term asset allocation — even when the markets are in tumult.”

Who else has advised index funds? Vanguard’s John Bogle recommends them. Warren Buffett of Berkshire Hathaway, the Oracle of Omaha, has also advised them. With a panel like that, why do people choose to pick their own stocks?

It’s the thrill. It’s the excitement. How fun is it to say you made $500 this week on the stock market because you made a great trade? How fun is it to buy a stock prior to its earnings announcement and then see if you guessed right? If that sounds like you, then recognize that you’re gambling on the stock market.

It’s no different than if you put down $500 on black or put it all on a hand of three card poker… do the brokerages give you a free meal or a free room if you lose big? Probably not… if I were you, keep the gambling in the casinos where you get a little more enjoyment out of it! 🙂

(Photo by http2007)

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8 Responses to “Gambling Is Entertainment, Stock Market Investing Is Not!”

  1. Matt says:

    For me casinos are meant to be enjoyed – the markets are there to make me money. There is no room for random guessing unless its casino style money – fit to be lost.

    Great post – keep the gambling in the casinos.

  2. Jesse says:

    I think a lot of the attraction is that with gambling, instinctively you KNOW that the odds are against you. On the other hand, with investing, there is a sense of “if I study enough, and am smart enough I can BEAT the system.” This may or may not be true and for the most part isn’t because all the other day traders are trying to do the same thing…but at least the possibility is there of having “better” odds.

  3. Amanda says:

    When I worked in the Futures Industry, many of the traders in my office were also compulsive gamblers. I found it interesting that there was such a blatant relationship between the two…

  4. Adfecto says:

    No one can afford to gamble with retirement. Index funds and diversification are the only way Main Street USA should invest.

    On another note, the casinos always win. Try poker instead. You are playing against the player and not against the House.

  5. Patrick says:

    Jim, I agree for the most part. I love throwing cards, and casinos can be a lot of fun. As for stocks and other investments, I believe they should be for investing, not gambling.

    However, if you are disciplined enough to take a very small portion of your portfolio for use as “mad money,” and use only that small amount, then it is the same thing as playing cards. The danger comes when you start mixing business and pleasure. Leave investment and retirement money in investment/retirement funds.

    But use your play money for play money – casinos, stocks, horses, gadgets and gizmos… As long as you are responsible and draw the line, then it is really no different.

  6. Phil says:

    While there is a certain thrill in owning individual stocks of individual companies — especially those companies that sport a nice, stable dividend — in my view, the main reason to own individual stocks of well-run companies over index funds is cost.

    Any and all funds will invariably cost more to keep than any given stock. Simply put, the only time a stock costs money is when you go into it or come out of it.

    Personally, I rely upon a well-known stock advisory service that aims to beat overall market returns over the next 3 – 5 years, minimum; it’s a “buy-and-school” strategy, actually. Invest in good companies — not tickers — and keep tabs on them going forward.

    It is unfortunate but sometimes, with index funds, the managers get paid whether the fund does well or not. And even with a modest subscription to a reputable stock advisory service, I’m coming out ahead of the game.

  7. Meg says:

    I totally agree!! I love gambling (too bad I have to fly all the way to Vegas to do it though).

    I tried day trading for a short time; I didn’t lose, but I didn’t gain much either. I had fun, but when it came time to do my taxes, it was a nightmare! Plus, oh yeah, if I’d had that money in an index fund that year I would’ve made about 16%.

    I knew what I was doing though, and didn’t actually think I’d beat the markets. How can any lowly individual investor actually think that? The information is SO incomplete, and by the time the news and reports trickle down to us (if you read them at all that is), the big players have already acted on them and moved the stock.

    It’s fun, but I agree-you might as well be getting some free drinks out of it!

  8. Savings says:

    There’s a tax advantage with “gambling”? in stocks, bonds, options, futures. The IRS forgives you on your “investment”, and allows you to deduct the losses (up to $3,000 per year, carry-forwarding allowed.) Playing with your money in a casino is not forgiven if you lose it.

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