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Gambling and the Stock Market

There Are Major Differences Between Las Vegas and the Stock Market



One of my biggest pet peeves is when someone carelessly throws out a line such as "playing the stock market is the same thing as gambling."  It is such an ignorant statement, illustrating the fact that the speaker has no idea what the stock market or investing in it is about.

Do I sound bitter?  Perhaps, but I've got issues, just ask my wife.


Perhaps a clue to understanding why this is such an incorrect statement is to focus on the word "play."

When you go to Las Vegas and put your money down on the table, for 99.9% of us that are not professional gamblers, we are in fact "playing."  We are doing something for our enjoyment, fully understanding that the money we may lose is the price for our fun.  

However, investing in the stock market is not supposed to be "fun."  Sure, making money in the market can be enjoyable, but that is a direct result of approaching the process with hard work, discipline, and a methodology -- not powering down Heiniken's while buying Apple for "fun."

Upon entering any casino in the world you will automatically be faced with an array of exciting and fun games to chose from -- the vast majority of which you have no earthly chance of winning at.  The one game you may have a chance at is Blackjack, but only if you use a strict and tested methodology.

In a normal Blackjack game the house can have up to a 20% advantage over you, meaning if you are betting $100 per hour you can expect to lose $20 each hour.  If you play a "perfect strategy," the one where you hit, stand, and double-down exactly by the book, you can lower the house advantage to 1.2%.

Now if you introduce a strict card counting strategy into the game -- which though technically not illegal, will get you banned from most casinos if caught -- you can theoretically negate any house advantage.  Then it is just a case of "betting right," or pressing your bet when the deck is rich with face cards, where you can make your money.

What I have described here is a methodology.  A set of rules -- risk based rules -- that the Blackjack player can employ to win money.  But if that player deviates from those rules, perhaps from drinking too many of those free Heinekens -- which is why they casino gives them away for free -- then the odds revert back to the casino's advantage.

My guess is that most folks who make statements equating the stock market and gambling don't have any methodology in either and probably have failed at both numerous times.

If you have to draw the comparison between the two, a much better example is poker, where you are not playing against the house -- though they take a cut in poker with the drop and in the market with commissions -- but against other players/investors.

It is your responsibility to go into the market better prepared than the average investor.  That means having a risk based methodology in place, putting more money to work when circumstances warrant it, and knowing when to pick up your chips and leave the table, even if just temporarily.

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