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What's the difference between trading/investing and gambling?

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prawn_86

prawn_86

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A discussion with Miss Prawn last night over dinner bought up an interesting topic. She seems to have the opinion that investing and/or trading is pretty much gambling. After much discussion and many points raised I have to say she does have a fair argument.

The following are points I have raised followed by her responses:

1. She will concede that it is not the same as fixed odds gambling such as roulette, but she likens it more to Poker or betting on horses.
This was the only concession I could get out of her :eek:

2. Me: "Investing is making an informed educated decision in which you lower your odds of losing"
Her:
Poker players fold hands or only play strong hands. People how follow horses thoroughly can look at previous record/track conditions etc
Click to expand...

3. You can walk away from the share market with you profits/losses at any time, not just when a race is over.
Same with poker
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Any other ideas/discussion out there? Or are we all just gamblers in disguise? :eek:
 
Re: What is the difference between trading/investing and gambling?

Life is a calculated risk.

We 'gamble' every time we leave the house...

And while we're inside it....
 
Re: What is the difference between trading/investing and gambling?

kennas said:
Life is a calculated risk.

We 'gamble' every time we leave the house...

And while we're inside it....
Click to expand...

Agreed.

But what is it that seperates us in the sharemarket, from those in a casino or on the track?
 
Re: What is the difference between trading/investing and gambling?

Biggest difference is, very rarely do you walk away from stocks as an investor with a 100pc loss on outlay (try telling that to geared people, shorters etc though ).

Where as a wager placed is either pay out or 100pc loss. :D
 
Re: What is the difference between trading/investing and gambling?

Trading profitably occurs when you trade with a positive expectancy.

You CAN limit risk and you CAN maximise gain.

A loss on the races guarentees 100% Loss.
With poker you dont know what the other players hold.
With trading you can see everyones hand.
You can limit loss.

Developing a trading methodology with a positive expectancy is of course the challenge.

Most never do this and most believe that having a trading plan is all thats required.
A trading plan which in the end returns nett losses isnt a positive expectancy method.

Your not necessarily lowering odds of loss more so increasing the opportunity of profit.You can be wrong 80% of the time and still spectacularly profitable.

Id enjoy a discussion over a Coffee with your better half.(You can come!).

If your wife is right God help all those who have 100s of 1000s tied up in Super.

Trading is a business and should be approached this way.
But your wife is correct in the majority of cases.

A look in the Alphabetical section of trade codes here on ASF will show you where many "Gamblers" reside!!
 
Re: What is the difference between trading/investing and gambling?

tech/a said:
Trading profitably occurs when you trade with a positive expectancy.

You CAN limit risk and you CAN maximise gain.

A loss on the races guarentees 100% Loss.
With poker you dont know what the other players hold.
With trading you can see everyones hand.
You can limit loss.

Developing a trading methodology with a positive expectancy is of course the challenge.

Most never do this and most believe that having a trading plan is all thats required.
A trading plan which in the end returns nett losses isnt a positive expectancy method.

Your not necessarily lowering odds of loss more so increasing the opportunity of profit.You can be wrong 80% of the time and still spectacularly profitable.

Id enjoy a discussion over a Coffee with your better half.(You can come!).

If your wife is right God help all those who have 100s of 1000s tied up in Super.

Trading is a business and should be approached this way.
But your wife is correct in the majority of cases.

A look in the Alphabetical section of trade codes here on ASF will show you where many "Gamblers" reside!!
Click to expand...

Its Miss Prawn, not Mrs Prawn at the moment tech. :)

But i'll get her to read this thread after i get a few more responses. But i think she will take some convincing.

She can be almost as stubborn as me sometimes :eek:

EDIT - she would also argue that people who play poker for a living have a positive expectancy. Even if its not as transperant as trading
 
Re: What is the difference between trading/investing and gambling?

tech/a said:
With trading you can see everyones hand.
You can limit loss.
Click to expand...
Trading price action, this may be the case, but 'investing' requires some judgement of the available facts, resulting in a calculated risk take. It's probably why some people prefer technical trading as opposed to investing.

Perhaps there's a greater 'gamble' with investing...
 
Re: What is the difference between trading/investing and gambling?

prawn_86 said:
Agreed.

But what is it that seperates us in the sharemarket, from those in a casino or on the track?
Click to expand...

Interesting analogy, albeit a very philiosophical one

There probably isn't that much that separates gamblers of any type. Assessing the track conditions on race day is much like assessing the current market conditions, hard and fast, a bull....slow and soft, expect anything.

I guess the day traders are the guys at the poker table who are looking for the multibaggers...the straight flushes and full houses for the ko blow, but will quickly fold when the going gets tough. The long term players will be happy with a few pairs every now and then, and despite suffering some short-term losses, will aim to gain over the long term through wisdom and experience.

Sounds a bit weird, I even surprise myself sometimes.

jman
 
Re: What is the difference between trading/investing and gambling?

I'd say it's all a matter of degree, depending on exactly how you define gambling.

If you say a general definition of gambling is risking money on an event with an uncertain outcome, then a lot of things could be considered gambling, it's only the degree of risk that changes.

Risk varies with the degree of skill involved and the skill of the punter. Many casino games like roulette and the pokies have no element of skill in them, so player ability doesn't matter, but games like blackjack, poker, and horse racing do have a component of skill (for horse racing it might be better called knowledge than skill) and thus the ability of the player can have some effect.

Share investing or trading would fall into the latter category, with quite a high level of skill involved in trading in particular. The level of risk varies from trade to trade and method to method, with part of the skill being minimising the risk of each trade (or perhaps minimising the risk/return ratio).

But then, even something as simple as investing in a term deposit has some risk, and thus could be considered gambling to some extent (especially if it's in something like Bridgecorp). In that game though, the only real player skill is in assessing the risk/return ratio for the prevailing economic climate.

GP
 
Well if the lady prawn considers and believes all things with positive expectancy can be classified as gambling then all business in whatever form would also fall into this catagory.

Do you classify a bookmaker as a gambler?
Or a casino.
Both can go broke!

When your doing your home budget are you gambling?
You can go broke due to outliers (un predictable events).
So to can any business,any investor,any property developer,any body.

I will hazzard a guess that lady prawn has a fear of risk and a cursory understanding of it.

Management of risk is instinctive in daily life and learned in the business world.
I'm afraid she cannot see the business side of trading---let alone understand it.
 
it's a blurry distinction but it might have something to do with expected value...

no matter how you play roulette it is always a bad bet, you are risking more than you stand to gain, and you can only expect to lose. same goes for pokies, lotteries, etc. therefore you are a risk taker ie. looking to lose money

trading/investing as well as poker, race bets, blackjack (depending on how you play them) can be a good bet, you expose yourself to risk, but you can expect to gain more than you lose. therefore you are risk adverse
 
tech/a said:
I will hazzard a guess that lady prawn has a fear of risk and a cursory understanding of it.

Management of risk is instinctive in daily life and learned in the business world.
I'm afraid she cannot see the business side of trading---let alone understand it.
Click to expand...

I would have to agree there tech.

But on a very definitive narrow view of the definition pretty much everything we do involving money is gambling of some form
 
prawn-86 said:
pretty much everything we do involving money is gambling of some form
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On the other hand, gambling is not limited to monetary activities. Russian roulette for example.

GP
 
Uncle Ben and Uncle David in their Security analysis book stated

"An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative."
 
Re: What is the difference between trading/investing and gambling?

prawn_86 said:
EDIT - she would also argue that people who play poker for a living have a positive expectancy. Even if its not as transperant as trading
Click to expand...

That would be true to professional poker players. There are techniques and tactics that would enable a player to gain "temporary" advantage over the house and/or other players. The professional player would then exploit this advantage and utilise money management (a.k.a position sizing) to limit his risk and win money over the long term.

In fact, the theory for money management in trading has basically evolved from professional gambling.

It's a matter of exploiting temporary advantage and minimising risk of ruin to earn a profit over the long term.
 
here's another take

All investment is speculation. The only difference is that some people admit it and some people don't.

It's like the difference between luncheon and lunch. You get the same liverwurst sandwich either way. The only difference is in the impression somebody wants to make.
 
Re: What is the difference between trading/investing and gambling?

prawn_86 said:
Agreed.

But what is it that seperates us in the sharemarket, from those in a casino or on the track?
Click to expand...

when you gamble there is always a winner and a loser,... and nothing is really being produced or added to the economy, money is just changing hands if certain things do or don't happen.

when you invest you are putting your money into a company or some other asset that has a decent chance of genrating longterm income or growth,..

You can win in the game of investing without anybody losing,.... but you can also lose without anybody else winning.

say someone has a good idea of building a gas pipeline to transport gas from field to consumer,... investors will place there funds into the venture in the hope of building a succesfull pipeline that delivers an income stream,... offcoase things can go wrong but it is not like betting on a horse.

If i did have to compare investing in the sharemarket to gambling at the races I would say investing would be more like betting that the horse would finish the race not that it was going to come first,... Some stocks do fall over as do some horse's but at the same time as long as you hold it long enough most stocks will finish the race weather it be hard and fast in a boom or slow and steady with a growing dividend yeild.
 
Re: What is the difference between trading/investing and gambling?

Tysonboss1 said:
You can win in the game of investing without anybody losing,.... but you can also lose without anybody else winning.
Click to expand...

This could probably be disputed also though Tyson.

Each time i buy a share that rises in value, someone has missed out on that potential rise. And if they sold at a loss (for whatever reason) then i have won from their loss.

But i do see the point you are making :)
 
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