Several times in my short career as an economics professor, I have had someone tell me that investing in the stock market is morally questionable because 'it's like gambling.' Certainly the unusual volatility we have seen in the stock market over the last several years has, like a lottery, enriched some and impoverished others. But is buying a share of stock like buying a lottery ticket?

Gambling and stock market investing both involve risk-taking, but this does not equate the two. Taking risk is inherent to diligent and productive work (Proverbs 22:13; Ecclesiastes 11:4). Gambling is consumption — it is done for the entertainment value of taking a risk. Stock market investing contributes to production — it is the taking on of risk as part of providing a valuable service. Because gambling is consumption, a gambler can expect to lose money, on average. An investor in the stock market can expect a considerable return, on average.

Overall the stock market is a safer investment than sports gambling, though admittedly less exciting or fun to research. Day trading is the exception to this rule. In day trading, individuals essentially place a short-term bet on the performance of a given company and either win or lose money according to that bet. Investing vs gambling: Investors and gamblers both want to put more money in their pockets. But by building a diversified portfolio with stocks, bonds,. Gambling is time-bound. The concept of time is another key difference between stock investing and gambling. Gambling is a time-bound practice, but stock investing can last several years. In gambling, once the game or hand is over, your chances to make more profit from your wager are closed. Posted by Wall Street Oct 21, 2018. Tech Company Stocks for Less Than $5 per share As the tech industry continues to grow at a super-fast.

The Problem with Gambling

Gambling, reduced to its essence, is the exchange of a dollar for an expected return of somewhat less than a dollar, sometimes accompanied by blinking lights and spinning wheels. Now, we cannot say that gambling is wrong because it is entertaining, nor can we say that it is wrong because it is risky. We cannot even say that it is wrong because the gambler is likely to wind up poorer, for there are plenty of legitimate activities that cost money. A gambler is engaged in morally questionable activity because he is deriving entertainment from that which ought to have no entertainment value, like one who laughs at a car accident. A gambler takes that which is certain — a bird in the hand — and exchanges it for that which is uncertain — a less than 50-50 chance at the two in the bush. Gambling is entertainment for people who enjoy risk and uncertainty for their own sakes. The Bible encourages avoidance of risk (Ecclesiastes 11:1, 2), not reveling in it.

Why Stock Prices Change

People who believe the stock market is like gambling apparently misunderstand the source of fluctuations in stock prices. What seems like random movements or the product of mass psychology actually has a rational economic explanation.

This may be difficult to believe, given the rapid changes in the value of, say, Internet stocks in the last five or six years. First they increased at a rapid pace, even for a few firms that could not show a profit. The closely watched P/E ratios — the ratio of stock price to actual earnings — began to rise to stratospheric levels. Then, as though stockholders had suddenly and simultaneously lost their trust in these firms, the prices began to fall. Had the stock price lost all connection to a rational assessment of the firm's value? Most people seemed to think so. Yet it is not necessary to appeal to irrationality or mass psychology to explain these changes. A firm's stock price is a reflection of the firm's expected ability to produce earnings. Expectations change with new information, and with new interpretations of old information. Therefore, while the actual earnings of a firm may change only gradually, new information can appear instantaneously that causes people to re-evaluate the firm's prospects.

Stocks are generally traded for two reasons. The first is that each individual's investment goals will change over time, and each person will want to change his portfolio to reflect his tolerance for risk, need for income, or liquidity. The second reason is that the person selling the stock has a lower view of the firm's prospects than the buyer. The seller's opinion could be based on unique information he has which the buyer does not, or it could be that the two parties to the transaction simply have formed different theories about the same information. Some have said that selling stock during a boom is a matter of finding a 'greater fool' to take the stock off one's hands in exchange for dollars, but this is a matter of perspective.

Market Speculators

Speculation in the stock market — buying now in anticipation of selling at higher prices later — is valuable and completely moral. Firms that discover ways of being more productive will be recognized by stock-market speculators, and their stock prices will rise to reflect the higher market value of the firm. The firm will benefit directly because its debt will fall as a percentage of its recognized market value, making it easier for the firm to borrow more if it chooses. Later, the firm may find it easier to raise capital by selling new shares of stock, perhaps for higher prices. Because of the information provided by speculation in the stock market, firms with good ideas are recognized early and rewarded with easier access to capital. Firms with poor management or other problems are denied capital. In return for performing the valuable service of identifying more productive firms, the speculator receives compensation in the form of capital gains. Though stock traders are often denigrated as not really 'working' for their living, they are some of the most important individuals in society. Speculation, and the information it provides, are indispensable to wise stewardship of resources.

Does everyone who invests in the stock market have this ability to judge, this skill in evaluating the future prospects of firms? No, of course not. However, over time, those with poorer judgment tend to lose money and be discouraged from future investment. Those with exceptional abilities may 'rent' their skills to others for a fee — leading to a class of professional investors who handle funds for the less capable. Yet all investors have one common trait — a willingness to put off consumption and devote resources instead to that which makes the economy grow in the long run.

As we have seen, investment in stocks provides us with valuable information — a constantly changing market assessment of the values of corporations. This should not be confused with gambling simply because of the risk involved. Instead, we should appreciate participants in this market as future-oriented contributors to long-term economic growth.

Topics: Biblical Law, Business, Culture , Dominion, Economics

Gambling Vs Investing – What’s the Difference?

Since the financial crisis of 2008, many consider investing in the stock market a form of gambling. I was among this crowd that developed a negative view of investing. I felt like the stock market was one big online casino and that your money wasn’t safe. At least if you head to a casino to go gambling you’ll get free drinks…

Gambling Vs Investing – Gambling Pros and Cons

One thing that gambling has going for it is that the odds of each game are fixed. You know exactly what you’re getting when you approach a game to play. Most online casinos that have slots, poker, black jack, etc. are all required, by law, to implement the appropriate odds in their games to match their physical counterparts.

Another pro of gambling and online casinos are that they are fun – some times a little too fun 🙂 They can become addictive in a way – much like active day trading in the stock market.

What are the cons of gambling and online casinos? Well, in the long run the game odds are stacked against you. Ever heard the saying that the house always wins? Unless you work to develop some sort of gambling skill (counting cards, card playing systems, etc.) you WILL come out behind in the long run.

Can you make a lot of money gambling? I know a friend’s brother that made ~$75,000+ one year by gambling through an online casino at Texas Hold’em poker (before online gambling and online casinos were outlawed in the US). He also was invited free of charge to a Texas Hold’em 7-day cruise! So yes, you can make money with online casinos IF you know what you’re doing and you have a lot of practice!

Gambling Vs Investing – Investing Pros and Cons

When I talk about investing, I’m mainly discussing investing in public equities through the stock market. What investing has over online casinos and gambling is that over the long run, the market rate of return for the stock market is ~8%. This means that over the long run, if you keep your money invested long enough, you will come out ahead! Another pro of investing vs. gambling is that your dividends and capital gains are taxed as long term capital gains. This means that you’ll pay only 15% taxes. Gambling proceeds are generally taxed as income at a much higher rate. An additional pro that investing has going for it is that if you just decide to invest in market index funds, you’ll find it pretty easy to get started. And, you’ll net yourself some great returns.

Now, what about the cons of investing vs. gambling? Well, investing is pretty boring if done properly. Compared to online casinos and gambling, investing is about the most boring thing in the world – almost like watching grass grow. Also with investing, you may be limited by the liquidity of your investments. This means that if you’re investing in a thinly traded stocks that crashes, you may have a very hard time pulling your money out. Another con of investing is that there is a bit of a learning curve to get started if you decide not to use market index funds. With gambling and online casinos, you can login, click the slots, and be playing for free or with real money in less than a minute – it’s hard to beat that in terms of simplicity!

Gambling Vs Stocks Vs

Gambling Vs Investing – Comparison Table

Here’s a simple table that brings a lot of the concepts discussed here together:

Sports Betting Vs Stocks

Gambling Vs Investing – Final Thoughts

Which is right for you? While gambling with online casinos can be a lot of fun, it really isn’t a strategy that I’d personally recommend to develop your wealth for the long run. Sure, online casinos and gambling are fun, but unless you’re willing to put in a lot of time to develop your gambling skills, you’re very likely to come out behind over the long run 🙂

Sports Betting And Stocks

This post published by Tom Shannon
Coming from Sheffield, Tom’s hobbies include writing, recording music, and creating video games. He also runs events to do with video games where people come to watch tournaments. Tom is currently studying in his final year at university

Gambling And Stocks