Difference Between Investment And Gambling Slideshare

1. Difference Between Investment And Gambling Slideshare Social
2. Difference Between Investment And Gambling Slideshare Presentations

Investing in the stock market and gambling at a casino are often compared and deemed to be very similar ventures. Both the difference between investment and gambling involve risk and choice in hopes of future profit. Investors and gamblers have to decide how much they are wanting to risk.

Some traders typically risk between 2% and 5% of their capital base. Long-term investors often spread their money across different investments in order to try and minimize potential losses as a form of risk-management.

Risk-management in gambling is also proficiently sought after by professional gamblers. They look at whether odds are in their favor before they make a bet. A key comparable principle in both gambling and financial investing is to minimize risk while maximizing profits.

The United Kingdom has a rich history with real money Difference Between Investment And Gambling Ppt gambling. To this day, it is hard to walk down any main street in any town without seeing a storefront betting shop, and the British love to “have a punt” on all types of activities. Today, that $10,000 investment is worth more than $80,000, or an annual rate of return of just under 70%. The difference between gambling and investing is a little bit of research, and the.

Difference Between Investment and Gambling

However, there is a huge difference between investing and gambling when it comes to stopping losses. In gambling, particularly in sports gambling, there are no loss-mitigation strategies due to the activity being so speculative.

Stock investors however can set up stop losses on a stock investment which is the simplest way to avoid unnecessary risk. If stock drops 10% below its purchase price there is an opportunity to sell that stock to someone else and still retain 90% of the risk capital.

However, if you put a bet on that states that Tottenham Hotspur Football Club will come first in the Premier League, you cannot get any money back if they come second. You will lose everything you’ve put on, which isn’t the case when it comes to stock investment. Gambling is mainly to do with pure chance, and there are a lot more loss-mitigation strategies when it comes to financial investments.
Time is another difference when it comes to comparing financial investments and gambling. Gambling is a time-bound event whereas financial investing can last several years if not longer. Some companies that pay dividends even reward investors that have purchased shares in the companies for risking their money.

As long as you hold onto their stock, companies can pay you money. But when you’re gambling, you either win or lose your capital – there is no in-between.

The way both investors and gamblers play the odds and try to look for an edge to help enhance their performance is a huge similarity between them. When it comes to gambling, particularly games such as blackjack and poker, players often study behavior, mannerisms and patterns in order to gain useful information which will help them when it comes to their own betting.

Stock investors study trading patterns by interpreting stock charts in order to accurately predict where the business might be going in the future. However there is a difference in terms of how much information is available to both investors and gamblers. Information is valuable when it comes to both sectors, but stock and company information is always readily available and in the public domain.

Unsurprisingly, there is a limited amount of information when it comes to gambling. Sitting down at a poker or blackjack table in a casino gives you next to no information other than whispers about whether the table is hot or cold – all of which is relative to the other tables in the room. Essentially, gamblers go in almost blind other than from the information they can read and know about the players around them.

Although the idea that investing and gambling are somewhat similar isn’t untrue, there are far more differences that similarities when it comes down to aspects of information and time. Both involve risk and revolve around maximizing profit, but in general, investors have a much better chance at success than gamblers.

[Welcome to the fifth installment of our gambling/investing series. Just in case you missed them, you can still read Part One, Part Two, Part Three and Part Four]

Let’s look a few more of arguments made in support of the notion that gambling and investing are not similar. Again, I think you’ll find that the two practices share more in common than many would like to admit.

Mathematical Expectations. Many investors go out of their way to avoid any association with gamblers. Sometimes, they’re making valid arguments. Sometimes, they’re claiming that “mathematical expectations” differentiate the two pursuits. That isn’t a compelling position.

Financial Mentor makes the argument:

Gambling and investing are both games of chance. Both involve probabilities where you put money at risk with the hope of a return, and both can make your hard earned savings vanish when you bet wrong.

So what is the difference between gambling and investing, and why should you care?

The difference boils down to one simple concept that sounds intimidating but is actually easy to understand – mathematical expectation.

That sounds good and it certainly puts investment in a positive light. The problem? It’s not really true.

The argument basically maintains that the difference between investment and gambling is the fact (and it is, admittedly, a fact) that a smart investor acting on the best possible information has a significant “edge” over the gambler.

That’s not a distinction between gambling and investing, though. It’s a distinction between different gambling options based on the odds.

Would you believe that blackjack is not a form of gambling because it offers a greater chance of winning than does a stay at the craps table? Of course not. Both are gambles. So was your latest stock purchase.

Difference Between Investment And Gambling Slideshare Social

The fact that good investment has a much greater likelihood of creating better results doesn’t somehow divorce it from the world of gambling. It just makes it a better bet. And it remains a bet because even the wisest investor is at risk. If we’ve learned anything over the past few months, it’s the fact that even sane, conservative, well-planned investment strategies can stink the joint up like a bad beat on the river at a hold ’em table.

Time. Investing is long term. Gambling is short term. That’s a common position held by those who don’t think the two pursuits share a great deal in common. Matt Krantz outlined the argument in USA Today:

Investing is slower. You hope to double or triple your money, but over decades, not minutes or hours. This is possible by investing your money in companies that increase prices and profits steadily over time and return cash to investors.

The problems with this perspective?

Difference Between Investment And Gambling Slideshare Presentations

First, it chooses to evaluate gambling as singular events and investments as a whole. Gamblers may opt to be in it for the “long haul”, making certain bets or engaging in certain behaviors over an extended time.

Second, it wrongly argues that investors are only interested in long positions. How long do you have to hold a stock to qualify as an investor, we might wonder.

Third, the time distinction is arbitrary. It doesn’t address the core motivations and mathematical underpinnings of either gambling or investment. It’s a straw grasp, trying to force a distinction artificially where none really exists.

Luck vs. Skill. This is probably the most common (and most self-serving) arguments investors offer as proof that they’re not gamblers. Don Luskin echoes the common sentiment in Capitalism Magazine:

The central idea that separates gambling from serious investing or trading can be discovered in the old saying, “I’d rather be lucky than smart.” The essential distinction is that gambling isn’t smart, and depends entirely on being lucky — while investing depends on being smart (but being lucky never hurts).

Luskin concedes that luck has some role in investment outcomes, but he still maintains that the dividing line is the “fact” that gambling is an inherently luck-based activity.

That represents a serious misunderstanding of gambling. Sure, there are those who slide a twenty into a slot machine and hope for the best. Those people are operating from a purely luck-based perspective. But what about the poker player who’s honed her skills for decades? What about the sports bettor or race handicapper that studies events, just waiting for the right opportunity to make a move? Hey, we can even toss in the weekend blackjack player who took the time to learn basic strategy.

These gamblers are not operating purely from a luck-based model. Yes, luck will play a role in their success, but luck can make the difference between a windfall and whether that hurricane barely misses the housing development into which you just sunk $150K, too.

The arguments trying to separate gambling from investing are usually rather superficial. They look for ways to distinguish the two for the sake of convenience, rather than based on the actual decision making involved shared in both processes.

HOWEVER… And you’ll notice that was capitalized…

Investing is probably the best possible form of gambling… We’ll discuss why tomorrow.

Advertising Disclosure: Personal Finance Analyst has an advertising relationship with some of the offers included on this blog. However, the rankings, reviews, tools, and all other content are based on our objective analysis. For more information and a complete list of our advertising partners, please check out our full Advertising Disclosure. Personal Finance Analyst strives to keep its information accurate and up to date. The information in our reviews could sometimes be different from what you find when visiting a financial institution, service provider or a specific product’s website. All products are presented without warranty.