Now that the stock market has plummeted, there are legions of folks professing the demise of the individual investor an the entire concept of investing as pure gambling. It’s no surprise. In the wake of financial explosions right and left, someone has to say “I told you so.”
Gambling at it’s core is purchasing a chance where you may or may not know the odds, but there are set odds for every given circumstance. The odds of your winning at the Bellagio in blackjack are set, and if you play 1,000 hands, those odds will bear out over time.
If you look at one single tradeable item in the stock market, it’s easy to determine why and how the individual price movements occurred. If you had perfect knowledge, you could easily predict the direction that price would move. In blackjack, this cannot occur. The best player in the world has no statistical advantage over the second best player or even the 5,000 th best player. The rules are so simple and the options so limited. This is the same with games you play the house. Even the best players will hardly outperform each other.
Now look at poker. Poker isn’t really gambling. It’s a contest much like football. The difference between the best player and the 5,000th best player is hugely significant. Why? The game becomes far more complex, and skill and choice matters. If you bankroll the better player, you’ll come out ahead most of the time.
The stock market is representative of the companies that are competing in a very complex game. The stock values for any given company is representative of our belief of how skilled and how likely those companies are to “win” their poker matches. Can investing be gambling? Sure. If you gave $100 to each person on the casino floor to play with and hoped one would hit the jackpot, that would be gambling. It would also be gambling if you gave one person $1K and hoped they would hit the jackpot.
But if your money was backing the house? That’s not gambling, that is investing. Your money is backing the best player each and every time. For people who throw their money around, the stock market is a pure gamble. For those who invest over the long term with the house? That’s investing.
Oil trades at $50 today. If i asked 1,000 people if oil is likely to hit $100 again in the next 5 years, I bet 95% will tell me it will. I’d also guess they will be right. I also bet that 95% of them aren’t buying oil right now even knowing a 100% gain in 5 years would crush their other investments.
Why won’t they invest in a likely outcome? Well, its a whole lot more fun to stay at the casino and gamble than run the casino. If you want to stay at the Casino and gamble, than gamble away, just don’t look at us Casino Owners and think we are playing the same game
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