Differences between Investment and Gambling

There is a minority group of people who are afraid of taking airplanes because they are terrified by news of plane crush such as MH370. In fact, the odds of a plane crash are one for every 1.2 million flights, with odds of dyinone in 11 million. Your chances of dying in a car or traffic accident are one in 5,000.

Similarly, there is a group of people who will leave their money in the bank as their theory is “the stock market is a gamble and buying shares is equivalent to gambling. They perceive that if stock price goes up, they will win the game and if stock price drops, they lose. My mother always remind me that,” Ah boy, you should stop gambling in shares, it is not so easy.” She will also ask me to help her buy those penny stock at a few cents, the lower the price the better she perceives them as cheap. I always need to advocate it is the value not the price.

Let’s discuss the difference from the end results point of view between gambling and investing.

1. The Chinese saying “you lose nine times in ten when you gamble”

The nature of gambling is “you lose, I win” or “I win, you lose” or it is a zero sum game.

2. Investing is a fair game

The international market in stocks is fair and all parties can win if everyone buys into the shares of a strong and growing company. Then who are the losers? Apart from market crash (if you did not sell out, you won’t lose, market rebound back most of the cases), most of the countries’ stock markets have an upward trend in the long run. If an investor buys the stock for $20 and gets a yearly dividend of $2, he will recover his capital in 10 years time.

The 3 exceptional cases of market crash are:

a. 1991, Japan market drops from 36800. In 2015, it was at 20,000 which is 54% of original high
b. In 1991, Taiwan market drops from 12682, in 2015, it was 9,000
c. In 2007, China market index was 6,200. In 2015, it was 3,600. 

Let’s look at the difference in terms of the process

1. Gambling is a game of probability

Most of the games in a casino is based on chances except for cards counting for game of Blackjacks. If you are an expert and casinos may soon have you on their unwanted guests list and ban you from entering their complexes.

2. Investing is a skill set

The professional investors can use their skills in stock market. They can make money using fundamental analysis and technical analysis.

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