Australian (ASX) Stock Market Forum

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

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prawn_86 said:
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.

Any other ideas/discussion out there? Or are we all just gamblers in disguise? :eek:
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Maybe you should get her to read Uncle Ben Graham: the intelligent investor
Uncle Ben definition of investment.

"investment operation as one which on a thorough analysis of the facts promises safety of principal and a satisfactory return, anything else is speculation."

Everytime I buy and dont understand the business or bother reading many of its annual reports or work out how a company can survive a financial atomic blast I am speculating and put my capital at risk....

and If I lose money it's my fault and no one else for not following the principles.

So far following the principles safeguard my capital and provide me with adequate return :D
 
ROE said:
and If I lose money it's my fault and no one else for not following the principles.
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But there is still that risk that you are wrong, or something beyond your control/forecasts occurs, which could result in you losing money. Hence this element of risk (even when investing for cashflow), is always present, meaning there is some element of 'gambling'
 
prawn_86 said:
But there is still that risk that you are wrong, or something beyond your control/forecasts occurs, which could result in you losing money. Hence this element of risk (even when investing for cashflow), is always present, meaning there is some element of 'gambling'
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then most people dont understand investment :D
There is nothing come close to risk free apart from buying government bonds.

so if you scare of risk buy government bonds, investment gives you the option to generate return far greater than bonds ...but investing without first work out safeguard your capital is gambling...

and the risk is no matter how hard you try, you could be wrong but that chance is pretty small if you follow the correct principles and the one you get it right far outstrip the one you got it wrong.

it's like you going into a maths exams, what are the chance that the guys that study it for weeks vs the guys that walk into the exam?
who are more likely to get it wrong and who are likely to pass most of the test :D
 
ROE said:
it's like you going into a maths exams, what are the chance that the guys that study it for weeks vs the guys that walk into the exam?
who are more likely to get it wrong and who are likely to pass most of the test :D
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I totally agree, but therefore does that element of risk make investing a 'gamble'? I guess in the strictest definition of the word it does...
 
Mofra, consider that:

- Many sportsbettors don't have open positions during a game, but trade sportsbetting markets like a trader does financial markets.
- Betting allows the option to close before the event, and during the event if there is live betting.
- If the position is left open, it's no different than setting a stop loss, target profit, and waiting until one is hit.
- Poker players can close their position at any time.
- Poker players can control their opponents, but few traders can say the same.

Prawn86 said:
Hence this element of risk (even when investing for cashflow), is always present, meaning there is some element of 'gambling'
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It can be argued that we are all always gambling, but few of us are aware of it. We constantly weight up reward, risk and probability subconsciously. I think this kind of topic will always be a problem, as "gambling" carries a negative view, such as being wreckless or leaving things to chance, and people generally do not like loss of control.
 
Mr J said:
Mofra, consider that:

- Many sportsbettors don't have open positions during a game, but trade sportsbetting markets like a trader does financial markets.
- Betting allows the option to close before the event, and during the event if there is live betting.
- If the position is left open, it's no different than setting a stop loss, target profit, and waiting until one is hit.
- Poker players can close their position at any time.
- Poker players can control their opponents, but few traders can say the same.
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All valid points, however I think that in the circumstances you describe (that don't provide the bulk of gambling dollars in Australia at least) that is approaching professionalism within the gambling industry. Professional gamblers have a similar level of positive expectancy as traders, and conduct their affairs much like a business rather than a game of pure chance.
The question under those circumstances would be - is this still gambling, or a profession in itself?
 
The question under those circumstances would be - is this still gambling, or a profession in itself?
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I would say it is a profession, but is it still gambling? That would depend on one's definition of gambling, and it is just a word.

Professional gamblers have a similar level of positive expectancy as traders
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Actually, trading blows gambling out of the water. Decent capital requirements, high growth and great home run potential. In these ways, it is only bested by online poker, but that scales far, far worse for much lower limits (going from say 50k, 100k and 200k takes a great rise in skill, in trading we just scale).
 
I think everyones definition are different...

To me because at heart Im a value investor, with a history of trading....

Investing is finding sound fundamental companies with good positive outlook to provide a targeted growth or return over a set period of time......for me it tends to be more for mid to long term....

Trading is looking to get into and out of a stock or position to turn a profit, again usually in a set period of time, usually with a predetermined figure , but not always...

Gambling is taking a position on any probability position where a total loss of capital is a reasonably probable outcome. For example I would regard anything with a 25% chance or greater of a total loss of capital as gambling.

Knowledge and experience is a massive factor that allows some traders to trade where others carrying out the exact same position on the exact same stock at the exact same time are actually gambling.

Come in spinners...
 
Wysiwyg said:
The line between gambling (oops) trading and investing is very clear.
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By the way we just had the biggest financial crisis in our lifetimes and that 10K I put into CBA shares in 1996 is now worth 55k;) and the dividends keep rolling in.:D
 
Bill M said:
By the way we just had the biggest financial crisis in our lifetimes and that 10K I put into CBA shares in 1996 is now worth 55k;) and the dividends keep rolling in.:D
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My first parcel of 300 shares was CBA at around 11 bucks. Sold them soon after and never bought shares again 'till 2005. With DRP plus capital growth I would be sitting nice and if I had of been more knowledgeable I could have accumulated along the way. Could have, should have. :eek:
 
ROE said:
then most people dont understand investment :D
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Totally Agree
ROE said:
There is nothing come close to risk free apart from buying government bonds.:D
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Totally Disagree
Inflation, govt corruption, financial mis-mangement - what do you think a Zimbabwee govt bond issued 10 years ago when the country was incrediblly prosperous is worth now???
ROE said:
but investing without first work out safeguard your capital is gambling...:D
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Agreed
ROE said:
and the risk is no matter how hard you try, you could be wrong but that chance is pretty small if you follow the correct principles and the one you get it right far outstrip the one you got it wrong.:D
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True investing in sound fundamental stocks is significantly less risk in the long term then inflation , bank failure or govt mis-management for holding or spending your cash....One of the biggest risks to savers over investors, is themselves and there inability to refrain from spending their capital base....
ROE said:
it's like you going into a maths exams, what are the chance that the guys that study it for weeks vs the guys that walk into the exam?
who are more likely to get it wrong and who are likely to pass most of the test :D
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A great analogy....100% agree.....which is why Im primarily a value investor, investing on fundamentals, and only using technical for some finer detail...
 
prawn_86 said:
I totally agree, but therefore does that element of risk make investing a 'gamble'? I guess in the strictest definition of the word it does...
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I don't believe it does.

Simply having a small degree of risk present does not mean that somthing is a "gamble" or that you are "gambling"

Ponder these two different situations,

there are a group of six people, they have a six chamber revolver and the load 1 bullet into it and spin the chamber. each member of the group then takes a turn pointing it at their head and pulling the trigger. the guys are taking a risk and are gambling because one of them is sure to lose.

A different group of six men go to the sydney airport and all board separate planes and fly to brisbane. The men are subjecting them selves to an element of risk because sometimes planes crash and they could lose their life.

Some one could argue that the men who flew to brisbane on the plane were also "gambling" in a similar way as the guys playing russian roulette because both parties lives were at risk.

But I would argue that the only gamblers were the ones playing russian roulette because that system is guaranteed to produce a loser, where as the airline system does not guarantee anybody will lose.
 
The sharemarket in general is not a system designed for gambling and those that use it to make "investments" are not gamblers.

However people do "gamble" using the share market and place "bets" based on the daily outcomes of the share market.

People that blindly buy shares hoping the price will go up tomorrow or next week or next month are gamblers because they are taking part in an activity that is pure speculation.

Traders that trade CFD's or options are also gambling, because they are betting on shorterm movements in the market which can not be known with 99% certainty.
 
Tysonboss1 said:
But I would argue that the only gamblers were the ones playing russian roulette because that system is guaranteed to produce a loser, where as the airline system does not guarantee anybody will lose.
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The odds of death happening in the 2 scenarios are totally different and reflect reality...the chance of death for any one of the flyers on 1 single trip in Australia probably around 50000/1 (considering our air safety record) compared to the odds of the Russian roulette players not dying being about the opposite...probably 1/50000

Realistic understanding of the odds of success and failure is very important in assessing the odds of any investment being successful, time is the element the often separates investors from traders and gamblers.
 
mazzatelli said:
Don't you sell calls over your holdings...gambler?
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Yes I do sell covered calls,

but all I am doing there is selling someone else (a gambler) the right to buy my shares from me at a later date for a price that I choose, from my side of things there is no gamble because either way I make money. and I am not "gambling" anything.

The guy on the other side of the transaction is making a shorterm bet that by the end of the month the price will be higher than what I have aggreed to sell at and he can make a profit on the difference. He is betting a couple of $1000 that the share price will be $X by X date, this is pure speculation and gambling.
 
Tysonboss1 said:
Yes I do sell covered calls,

but all I am doing there is selling someone else (a gambler) the right to buy my shares from me at a later date for a price that I choose, from my side of things there is no gamble because either way I make money. and I am not "gambling" anything.

The guy on the other side of the transaction is making a shorterm bet that by the end of the month the price will be higher than what I have aggreed to sell at and he can make a profit on the difference. He is betting a couple of $1000 that the share price will be $X by X date, this is pure speculation and gambling.
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Yes you are gambling,

With naked short puts.
 
Tysonboss1 said:
Traders that trade CFD's or options are also gambling, because they are betting on shorterm movements in the market which can not be known with 99% certainty.
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Would have thought short term price movements are easier to predict compared to say 3 months out.
 
With trading/investing one can smoke, inhale and make love while simultaneously losing or increasing one's dough and not get arrested.

gg
 
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