Thinking out loud- gambling and the stock market

[btctony]

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...

Well I do believe that if you know very little about the market you are investing in, it can be considered gambling or high risk at the very least. I find myself in a different position. In 2017, I invested 25-30k usd in gpu's and other equipment to mine cryptocurrency after doing several months of research. Side note, I have nearly twenty years of experience in the information technology industry. In November of 2020, I sold enough cryptocurrency and in conjunction with tax write offs from the mining business and selling off my mining hardware, I took back my 30k usd initial investment. So now it's all house money. I'm left with a cryptocurrency portfolio that is currently worth 270k usd.

Did I take a risk? Yes, absolutely. All investments that include the expectation of increased value at a later date have some sort of risk tied to them. I feel that I mitigated my risk along the way with my information technology background and the knowledge that I have gained over the course of the last four years. I most certainly have made a couple of mistakes, but I have learned from them.

I do not consider myself to be a professional trader. I would put myself in the amateur swing trading category, if I had to classify myself. I average around six trades per year and I don't get caught up with the day to day market moves. I analyze longer time frames (weekly charts) and make my trades based on that information along with the fundamentals and current market perception as a whole.

I do not use Robinhood and never will. I do not own Doge and never will. I do not freak out when my portfolio value drops 10k usd in a day and never will. I hope this provides a bit of clarity and distinction between the full on gambling side of cryptocurrency and the side that is much less riskier, but still has the potential to outperform other markets.

[btctony]

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

Your friends may be gambling by spec mining alts with gpu's and selling them otc. A little different than what I started out doing in 2017. Perhaps slightly less risk if they are mining eth, but that will end when eth makes the full transition from a proof of work consensus mechanism to a proof of stake consensus mechanism. This is going to leave the gpu mining space with a lot of hash power and no where to go. GPU prices will probably bottom when this happens over the next year or so. That's why I sold my entire gpu mining farm piece by piece in November of 2020.

[btctony]

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.

Spend some time understanding the Bitcoin protocol. What you learn will be invaluable and very useful for comparing to Doge or other alts. Understand the supply cap. Understand the immutability. Understand why the public and open source ledger is superior to closed systems. Understand how the Bitcoin protocol solves the byzantine generals problem.

[myrdale]

As others said, gambling is pure luck. It's a one off. You walk in and pull the lever so many times and then you walk out. Either you were lucky or you weren't (blackjack aside).

Investing in the stock market on the other hand, your putting money to a machine that has a consistently increased in value for the last 100 years. Day to day, it may go up and down, but in the long run it is going to keep going up.

Now if you invest in a single stock, that is where you get into the realm of gambling. Wild picks and following the hype and your gambling. Buying Tesla and Doge because of Elon Musk and you're gambling. Recognizing the current state of affairs and seeing where things are going, now you're Warren Buffet.

Also when the stock market goes down, as long as you didn't sale, you still have the stock. It will most certainly come back up. When you put your coin in the slot machine and you don't win, that is it.

[bionniq]

I've been thinking about that for a long time.. and finally I must say that these are 2 totally different things. When you gamble, you just take the odds, you are blindfolded, hoping for a success, having nothing except luck. It has nothing with calculations and stuff like this, it's absolutely random. At the same time, when you gamble, you think a lot before spending the money, this is the main difference. Another difference would be that EVERYONE can gamble, it doesn't require any skills or knowledge. You just go to a casino, like here, and that's all. But to become an investor you need a lot of experience and knowledge, only a small percent of people who tries has succes at it.

[Fishindude77]

If you think about the average investor, he / she is sending money to a company they don't know all that much about (Vanguard, Mass Mutual, American Funds, etc), letting people they don't know and have never met (the traders at those companies), invest it into various funds and companies they know little to nothing about. This would pretty accurately describe most of our mutual funds, 401k investments, etc. Yeah ..... it involves a lot of blind trust and could be considered gambling.

Really getting to know a company or business and then buying that particular companies stock holding for long term growth, dividends, etc. is a much more calculated approach.

[disneysteve]

If you think about the average investor, he / she is sending money to a company they don't know all that much about (Vanguard, Mass Mutual, American Funds, etc), letting people they don't know and have never met (the traders at those companies), invest it into various funds and companies they know little to nothing about. This would pretty accurately describe most of our mutual funds, 401k investments, etc. Yeah ..... it involves a lot of blind trust and could be considered gambling.

I don't consider that to be gambling at all. Gambling is playing a game of chance in a setting where you know 100% that the odds favor the house. Slot machines, craps, lottery tickets, etc. would all be examples of that. Could you win? Sure, but it's highly unlikely.

Investing in established mutual funds and ETFs with proven track records is hardly gambling. I can easily look and see the 1, 3, 5, 10-year, and since inception returns of the funds I'm choosing. It's crystal clear if they have done well over time. And especially with index funds, you're pretty much guaranteed to come within a fraction of a percentage of the broad market performance for that index.

[james.hendrickson]

If you think about the average investor, he / she is sending money to a company they don't know all that much about (Vanguard, Mass Mutual, American Funds, etc), letting people they don't know and have never met (the traders at those companies), invest it into various funds and companies they know little to nothing about. This would pretty accurately describe most of our mutual funds, 401k investments, etc. Yeah ..... it involves a lot of blind trust and could be considered gambling.

Really getting to know a company or business and then buying that particular companies stock holding for long term growth, dividends, etc. is a much more calculated approach.

Thats correct Fishindude.

Just to quickly comment here - there are some knowledge and cultural barriers to investors getting more involved with their securities. First, understanding investing takes a level of knowledge that people don't always pick up in their daily lives. Individuals need to make a conscious choice to learn about stocks, mutual funds etc. And, in a lot of cases they've just never been exposed to any of these concepts before - so they go ahead and blindly invest. Why? Because they don't have the knowledge base to make informed decisions.

Second, in the US consumer culture doesn't favor the public focusing on financial security. Advertising and marketing largely emphasize consumption and immediate gratification instead of savings and long term financial health. So, there is no mainstream cultural narrative that promotes getting to know a company and holding their stock for the long term.

[Fishindude77]

Just to quickly comment here - there are some knowledge and cultural barriers to investors getting more involved with their securities. First, understanding investing takes a level of knowledge that people don't always pick up in their daily lives. Individuals need to make a conscious choice to learn about stocks, mutual funds etc. And, in a lot of cases they've just never been exposed to any of these concepts before - so they go ahead and blindly invest. Why? Because they don't have the knowledge base to make informed decisions.

The good news here is that most companies have a fiduciary committee that is obligated to review the company they select to handle the 401k program. That committee is supposed to meet regularly and review the firm they have chosen's performance, fee structure, investment options, etc. to assure they are getting a decent deal. Most of the majors (Vangurads of the world) in that business have extensive history they can show, ratings, etc. and generally do a pretty good job. Also, the fiduciary committee members are putting their retirement investments at risk in the same system.

Speaking from personal experience, company managers know that lower level employees are poorly informed and try hard to offer educational opportunities, one on one investment counseling, etc., and to strongly encourage participation in the saving and investment programs. Unfortunately, some just won't participate, or worse they participate and tap into the savings pre-retirement.

[james.hendrickson]

The good news here is that most companies have a fiduciary committee that is obligated to review the company they select to handle the 401k program. That committee is supposed to meet regularly and review the firm they have chosen's performance, fee structure, investment options, etc. to assure they are getting a decent deal. Most of the majors (Vangurads of the world) in that business have extensive history they can show, ratings, etc. and generally do a pretty good job. Also, the fiduciary committee members are putting their retirement investments at risk in the same system.

Speaking from personal experience, company managers know that lower level employees are poorly informed and try hard to offer educational opportunities, one on one investment counseling, etc., and to strongly encourage participation in the saving and investment programs. Unfortunately, some just won't participate, or worse they participate and tap into the savings pre-retirement.

Totally. Thats totally the case. A lot of companies bend over backwards to inform their workforce...yet, people still don't invest and save. Its like you can lead a horse to water, but you can't make it drink.

[TexasHusker]

I wish more companies still offered defined benefit pension plans. It's really easy for me to learn about investments, as I get to punch around on my computer all day in my cushy chair. The guy working at the sanitation plant, or the woman busting her butt waiting tables to feed her kids...even if they are offered a 401K, how the heck are they supposed to know what to invest in? Investing is all I do, so it's really easy for me to say "Oh you've got to take risk and invest your money."

But if I fix cars by trade, or work on air conditioners, or I'm in road construction, investing isn't in my wheelhouse.

[Fishindude77]

I wish more companies still offered defined benefit pension plans. It's really easy for me to learn about investments, as I get to punch around on my computer all day in my cushy chair. The guy working at the sanitation plant, or the woman busting her butt waiting tables to feed her kids...even if they are offered a 401K, how the heck are they supposed to know what to invest in? Investing is all I do, so it's really easy for me to say "Oh you've got to take risk and invest your money."

But if I fix cars by trade, or work on air conditioners, or I'm in road construction, investing isn't in my wheelhouse.

During my career we worked with 2-3 different outfits to handle the company 401k program. There was always an annual meeting where things were explained to all in very simple form, then each individual sat down with the rep. He asked about their level of risk comfort, what their expected retirement date was and suggested one of the company standard plans which were easy to understand and very simple. All the employee had to do was contribute their share, the company contributed the match and if they stick with the plan, the money will be there.

Biggest problem area is that many would not do any other saving and live paycheck to paycheck. They see that 401k statement periodically and realize they have a substantial nest egg. Then when they get in a pinch, they cry hardship and raid the 401k. In most cases, they would have been better off getting a short term bank loan for whatever they needed the money for, rather than raid the 401k.

[srblanco7]

The good news here is that most companies have a fiduciary committee that is obligated to review the company they select to handle the 401k program. That committee is supposed to meet regularly and review the firm they have chosen's performance, fee structure, investment options, etc. to assure they are getting a decent deal. Most of the majors (Vangurads of the world) in that business have extensive history they can show, ratings, etc. and generally do a pretty good job. Also, the fiduciary committee members are putting their retirement investments at risk in the same system.

Speaking from personal experience, company managers know that lower level employees are poorly informed and try hard to offer educational opportunities, one on one investment counseling, etc., and to strongly encourage participation in the saving and investment programs. Unfortunately, some just won't participate, or worse they participate and tap into the savings pre-retirement.

Well summarized. I sat on our Company's 401k committee and this hits the mark in terms of committee focus. We also hired a third party firm as co-fiduciary to the committee. The Company was in a "white collar" industry and our participation was generally considered excellent - around 90%, and we invested significant time & effort in education of our teams (though I was still a bit baffled at the percentage of our 401k funds invested in cash equivalents).

I contrast that with where DW works as a manager and deals with largely clerical staff. Most of her staff opt out of 401k participation for a variety of reasons - in general summarized as - short term "needs" outweigh long-term thinking - though it's also worth noting that many/most also lack an understanding of the basics of investing.

[LivingAlmostLarge]

During my career we worked with 2-3 different outfits to handle the company 401k program. There was always an annual meeting where things were explained to all in very simple form, then each individual sat down with the rep. He asked about their level of risk comfort, what their expected retirement date was and suggested one of the company standard plans which were easy to understand and very simple. All the employee had to do was contribute their share, the company contributed the match and if they stick with the plan, the money will be there.

Biggest problem area is that many would not do any other saving and live paycheck to paycheck. They see that 401k statement periodically and realize they have a substantial nest egg. Then when they get in a pinch, they cry hardship and raid the 401k. In most cases, they would have been better off getting a short term bank loan for whatever they needed the money for, rather than raid the 401k.

This is what I see. I see people who should be able to save and live they don't. Instead they raid their 401k. Or can't pay their taxes and they are constantly behind.

[anhtuvp]

Totally agree that crypto can feel like riverboat gambling, especially when folks dive in without real understanding. I’ve seen it happen with friends too, always refreshing the app, posting about random spikes or dips, and throwing more in like it’s going to magically fix things. I’ve dabbled myself, but only after a ton of reading and keeping expectations in check. Even then it’s unpredictable, which is kind of the thrill for some, but not a strategy I’d base my savings on.