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Gambling Is Entertainment, Stock Market Investing Is Not!

Posted By Jim On 02/25/2008 @ 6:36 am In Investing | 8 Comments

I’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 [3], 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 [4])


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[3] manager of Yale’s endowment: http://www.nytimes.com/2008/02/17/business/17swensen.html?ref=yourmoney

[4] http2007: http://www.flickr.com/photos/http2007/2203970068/sizes/m/

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