When does investing become gambling?

Is there a hard threshold? Do high risk investments such as penny stocks qualify as gambling? Do low risk investments? Annuities? Bonds? CDs?

This comment got me wondering.

Is it more to do with the venue? Stock markets and real estate vs casinos and the lottery?

Were the MIT Blackjack Team gambling or investing?

Or Jerry and Marge Selbee?

Is this just another semantic hotdogs are sandwiches discussion or is there an agreed threshold?

RBWells ,

I do call my small basket of individual stocks gambling (it is a couple hundred bucks, loses value overall, just like gambling) and the 401k I call "investing".

I do think investing in general is speculative though, so yeah I consider it gambling. Not bonds, but stocks yes.

AgentGrimstone ,

When I feel I shouldn't and I do it anyway.

fine_sandy_bottom ,

It's subjective... what does "gambling" mean?

Any thing you do has an element of risk, so you could say it's a gamble.

Wanderer ,

If its fun or get rich quick. Gambling.

If it's some boring thing some adviser told you that you are sick of, that you then told your family and they are sick of it. You just going to leave it and forget about it. Then it's investing.

pantyhosewimp ,

None of the answers I’ve read so far actually answer your question with basic facts.

When you invest then you are buying a tangible financial instrument: a share of a company or a treasury bill or a municipal bond and so on. There is the expectation that over time, the value of your financial instrument will increase in value but this is not guaranteed. The lack of guarantee is the risk. Some instruments are riskier than others. The level of risk does not define gambling.

When you walk into a casino and bet money on roulette, what are you buying? You are buying nothing more than a fleeting chance at winning more money. It is entertainment by thrill. There is no tangible thing that you own from gambling.

Investing is one way that companies can raise capital to expand their business. Business expansion can lead to greater employment and higher standard of living. For investing to work as an economic system there must be liquidity. Someone must be willing to buy your financial instrument later at a higher price or some town must still be collecting taxes to pay back your bond years later.

Hopefully you can see now why investing is encouraged and supported in society and gambling is either illegal or merely tolerated.

LwL ,

Shorting, crypto trading, options are all gambling. Long term investments are usually not.

One is hoping that the price will go a certain way in the short term. The other is giving a company money so they hopefully turn it into more money. that is the difference, nothing to do with casinos.

bss03 ,

IMO: When you do it for the entertainment/feeling/rush, it's gambling. When you do it for the returns, it is investing. I also think the other poster that mentioned investing as being interested in the success of the endeavor, that would exclude shorting and I think might be a useful distinction.

Casino games and sports betting all have lower expected value (probabilistic value) than their cost, so they are not something you can do for returns (you have better expected returns by not participating).

There are plenty of people that are misinformed, dishonest, or stuck finding a bigger fool that will sell you a gamble by calling it an investment, and expected value is not guaranteed value.

Moneo ,

If you're talking about stock picking, hard disagree. Emotion has nothing to do with it whether or not it's gambling.

If picking stocks was anything but a gamble portfolio managers wouldn't have such a god awful track record.

bss03 ,

Just because you are wrong about your expected value calculations (or were right but the actual return was on the lower end of the range) and have made a bad investment doesn't change the fact that it was an investment because you were doing it for the returns.

In short, performance doesn't matter for this distinction, at least IMO.

Moneo ,

You can dress it up in whatever language you want but when nobody is able to consistently beat the market it looks a hell of a lot like gambling.

bss03 ,

The DJIA (e.g.) isn't "the house". It isn't something you are competing with in that your losses are its/their gain. You are misunderstanding both investing (in general and the stock market specifically) and gambling when you make that confusion/analogy.

Not beating the market but having positive returns is only "losing" when infinite exponential growth is the goal. Beating the market but having negative returns is not "winning".

r00ty ,
@r00ty@kbin.life avatar

I'd say that it is always gambling because there is risk involved.

But I would say that both traditional gambling and investments have the same threshold for problematic behaviour, and that is when you spend more money than you can afford to lose. That is regardless whether you win or not.

db2 ,

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