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Differences between investing and gambling

At first glance, betting on stocks can seem like going to the casino. If you are lucky you will walk away a millionaire, and if you are unlucky you will go broke. But this is not the case – at least it doesn’t have to be. If you want to, stock investing can be a gamble. But if you know what you are doing, it is far from it. Investing in stocks is about something completely different than gambling if you are doing it right. Below are some of the differences between the two.

1. Investing is gradual – not immediate

There is no “winner takes it all” in the stock market. Stocks do not jump from 0 to 100. Stocks move gradually and slowly. You can choose to quit before the money is gone or walk away before you intended but still make a lot of money. There is no starting point or finishing line in stocks – you enter and exit when you want to. The stock market doesn’t wait for everyone to place their bets to start a new round. In gambling, the opposite is true. Once you’ve made your bet, the bet stands – and you either win it all or lose it all. There is no half-way where you can quit, and no stop-losses.

2. Diversification – gamblers often focus on one niche

You are betting, but you do not have to bet on one horse. There are many alternative stocks that you can choose between, and you can choose to invest in several to spread your risks. When you invest there is no guarantee that everything goes up, but it is also very rare that everything goes down. When you gamble, there is very often only one winner and a lot of losers.

3. Investing means owning something

When you invest you put your money into ownership of a part of a company. When you own that piece of company you can choose what you want to do with it – you can sell it forward to someone else, or use it to try and influence what the company does (usually you need quite many stocks in a company to have a say in what they do). Essentially you are betting that a company will succeed with its business. When you gamble you put money on the table betting against other players, or the house. When you are invested in a company you do not have to think about whose success you are betting against – only whose success you believe in.

4. Gamblers like risk – investors do not

Good investing involves no kicks – the more boring it is, the better!

As gambling is about luck, the risk is often much higher than that of investments. In investments you should know what you are risking, and never risk everything at once. In gambling it is often the opposite. Gamblers are known to be thrill seekers. If gambling was all about the money, there would definitely be better ways to make money (like investing). But gambling is as much about the kick you get from betting on something unknown. Good investing involves no kicks – the more boring it is, the better!

5. Investors take their time – gamblers do not

Investing is about qualified estimations, based on past experience. Not guessing. When you invest you do research, you wait for the right opportunity to enter, and you hold your investments for a long period of time, through thick and thin. In gambling, most of the time, when a bet is placed the results are in the same night.

How do I become a good investor?

It might look like it is all up to chance (and of course, depending on your definition of chance, to some degree it is always involved) but it is much more than chance. Both investing and gambling include SPECULATING on an outcome, but one is depending on more than chance as an input.

A good investor understands and connects math, economics, psychology and history to understand business. With Stocksholm, you do not have to be good at math or finance, as we’ve automated that part of finding the right stocks. We have also simplified the process of choosing stocks by visualizing what every company does.

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