Thinking out loud- gambling and the stock market

**sweeps** · 04-17-2008, 07:29 AM

Everything we do is a gamble at some level. You have to balance out the potential risks with the potential rewards. I bristle at the comparison between slot machines and stocks. Sure, both have risk, but you know that slot machines are rigged against you over the long haul. Stocks have historically been shown to be winners over the long haul.

**jIM_Ohio** · 04-17-2008, 07:42 AM

Not the same thing at all. Risks are totally different.

You only lose money when you SELL a stock.
In vegas, you lost the money the moment you put it on table and the only way to get it back is if you WIN. So vegas its about winning and losing, and when you lose you have NOTHING.

With stocks or bonds, you always have something unless companies go bankrupt or out of business. Even if market tanks 50%, you still have shares, which are worth 50% of what you paid for them. You have not lost anything unless you liquidate the shares (SELL).

Statisically speaking, you can make 8-12% per year on average in stock market. When market drops, you still have the same exact numbers of shares you did before the drop.
Statistically speaking, you will lose all your money you gamble more often than not. When you win it's bigger than 12% (like 25%, 50% or more). When you lose money you have no way to get it back unless you have more liquid cash from another source.

Measure in terms of risk and reward. Gambling and investing are NOT the same thing.

**disneysteve** · 04-17-2008, 08:27 AM

Being a blackjack player, let me add my thoughts.

Slot machines are completely and totally random. There is nothing at all that anyone can do to influence the outcome of each spin, and each spin is an independent event not affected in any way by the preceeding spins. The odds are pre-established by the programming of the machine to give the casino an advantage of up to 15% (that is the legal limit here in NJ). Most average about an 8% house advantage. So the game is rigged against the player quite significantly.

Stocks aren't like that at all. The company has inherent value. That price of the stock can be influenced by many factors such as sales, cost of raw materials, success or failure of new products, safety concerns, overall economic conditions, etc. A great deal of research goes into trying to determine which companies have positive prospects for growth. There is ino such thing with slot machines. There is nothing to study, no way to know which machine is about to pay off. Although market performance might sometimes seem random, it really isn't. There are all kinds of fundamentals and data that move the market up or down. And, as noted, long term stocks have a good track record of going up in value as a whole (though individual stocks may go down).

Blackjack is a little different. Unlike slots, the outcome is not random and the results of one hand are influenced by the results of prior hands. Blackjack is the only game in the casino at which the player can gain a statistical advantage over the house if he knows what he's doing. It still can't be compared to investing in the market, stocks or bonds, but it does differ significantly from slots.

**AirForce** · 05-07-2021, 09:45 AM

I completely agree. Selling stocks doesn't sound like a casino game at all. Of course there is risk in both, but they are fundamentally different things. Selling and buying stocks is much more complicated. You have to have different skills to do it, and knowledge in this area. And I personally treat casinos as entertainment. That is, it is a place where I can come and pay my money for emotions. For a burst of different hormones like adrenaline, endorphin, etc. For that I use apps like this. From my smartphone I can easily go in and play a little. And still I think that winning at the casino is only luck, chance. But he who does not risk does not drink champagne.

**TexasHusker** · 05-07-2021, 12:03 PM

Trading stocks is gambling. And in a robust bull market, everyone is an expert at it.

Investing in a stock is a different matter, entirely.

**james.hendrickson** · 05-07-2021, 12:40 PM

Originally posted by prosper View Post

besides the risk comparison, is there really a huge difference between gambling and participating in the stock market.

For example, If you are speculating and sell the market short, you are betting that prices on a particular equity or debt will be cheaper in the future. Slot machines( stocks) are riskier than say playing blackjack ( bonds) at the table. In the world of finance, you could use financial instruments such as bonds and foward contracts to hedge against risky speculating or higher foreign exchange rates . Im not a big gambler but I am sure there are various ways to decrease the level of risk in a casino. For example, if you are in a casino all day and you watched a guy play and use only one slot machine, ( assuming he hasn't won all day) that is a way to hedge because a certain amount of risk and loss has already been consumed.

Just thinking out loud; not suggesting that investors include gambling in their portfolio. I'm just wondering if you all think gambling is really that different from the financial markets exlcuding the level of risk.

As a matter of fact, would it be ideal to allocate .00001 of your portfolio to lottery tickets. ( small loss, big profit potential)

I fully admit I bought $50 worth of dogecoin - its a total gamble. I have no idea what the long term value will be or even how to asses its future value. Its pure speculation on my part.

**disneysteve** · 05-07-2021, 12:46 PM

Originally posted by james.hendrickson View Post

I fully admit I bought $50 worth of dogecoin - its a total gamble. I have no idea what the long term value will be or even how to asses its future value. Its pure speculation on my part.

There’s nothing wrong with speculation as long as you know that’s what you’re doing and you’re using money you can afford to lose.

**james.hendrickson** · 05-07-2021, 12:53 PM

Originally posted by disneysteve View Post

There’s nothing wrong with speculation as long as you know that’s what you’re doing and you’re using money you can afford to lose.

Whats amazing to me Disneysteve, is how inventive the human mind can be at justifying irrational decisions. I got the dogecoin through Robinhood, and had these crazy fantasies..."Well...what if it goes to $50,000 like Bitcoin, my fortune will be made, etc.". Seriously, greed can be an infectious emotion.

**Singuy** · 05-07-2021, 01:25 PM

Originally posted by TexasHusker View Post

Trading stocks is gambling. And in a robust bull market, everyone is an expert at it.

Investing in a stock is a different matter, entirely.

Traders are looking for volatility, not a bull market. A bull and bear market kind of crushes traders. A market that doesn't know what its doing is a traders paradise.

**LivingAlmostLarge** · 05-07-2021, 02:10 PM

So I am participating in the race to $250k from ER forums. Starting with $2500. Complete speculation and roulette. Playing with options and I'm losing money hand over fist. This is not conservative crap and it's fun. But no way in hell am I really moving my positions like that into options. I do invest in the stock market but mostly in a couple of stocks (FVRR, TSLA, AMD Thank you Singuy for the 1st two) and a few other stocks i"ve held for a long time. I also have positions in things i plan on selling later or some i've held forever. I've had disney for nearly 20 years, I bought when it was marvel. Anyway I mostly also hold ETF so I am in the stock market with less risk and more diversified. I hold sector ETF to make me feel better than picking like internationl, tech, healthcare, and commodities. Years ago we lost big on trading oil commodoties. About $100k that was my DH. Sigh. He did make quite a bit but it was when oil slide in 2013.

Anyway no it's not gambling depending on how you do it. BUT It is GAMBLING and for sure i am losing big in robinhood. My plan is to invest the difference of my new ARM and mortgage into VTWG. Something aggressive yet not too risky. I don't need the money but I want to make some. $700/month for 7 years i'm curious how I'll do

**TexasHusker** · 05-07-2021, 02:43 PM

Originally posted by Singuy View Post

Traders are looking for volatility, not a bull market. A bull and bear market kind of crushes traders. A market that doesn't know what its doing is a traders paradise.

Professional traders, you are absolutely correct. Traders who think they are professional, only know how to make money when the market goes up.

**ua_guy** · 05-07-2021, 04:54 PM

Two friends of mine bought crypto, and what they are doing is gambling, by no other name! Thankfully, it doesn't sound like either of them put any serious money in, but I also don't think they have ever invested before. Both of them did it through Robinhood, and it's turned, literally, into a game. Phone apps and social media are linked to neurotransmitter activity, so this is like the worst possible combination. Their phone is always with them, they look at their trading app a billion times per day, and they're playing a game with money.

Every rise, fall, they write a post about it. I don't think they seriously think they're going to win "big", but like buying a lottery ticket, why not put a few bucks out there on the off chance it does happen? It looks like an addiction. In some posts, they are frustrated. Others, elated. Neither of them can make sense of what is actually happening, and I certainly can't (the market looks like a zoo to me), but they are along for the ride. Note: I have not invested anything in Crypto, so, perhaps "unqualified" to speak about it. The concerning part is, when it soars to heights, the next time it drops substantially, both of them have put a few more bucks in, thinking, it must go up, and putting more in will build momentum. And the dopamine cycle continues...

**TexasHusker** · 05-07-2021, 06:07 PM

Every now and then I get an itch to gamble, and I don’t enjoy Las Vegas. So I’ll log onto my fidelity account, buy the latest cocktail party stock, lose my shirt, and then I’m satisfied for a year, maybe two.

**LivingAlmostLarge** · 05-07-2021, 08:40 PM

crypto is straight up riverboat gambling. i've got friends who mine it and talk about it.

Thinking out loud- gambling and the stock market