Many investors debate on investing in the stock market is just like gambling at a casino. This is the opinion of many investors who believe they are not investing but simply gambling in stocks. Gambling is quite like investing it’s a game of chance. However, there are major differences between gambling and investing. We will discuss the difference between gambling and investment in this piece.
The following reasons will paint the picture of investment vs gambling perfectly and will help you understand why the stock market is not gambling
Investors who invest in stocks of a company are buying ownership in that company. They have part ownership of the company. This means with every SIP investment you are earning more money. As you are a part-owner you have the right to claim on the assets, debts also including the small fraction of the profits made by the company. In the stock market to yield more returns the investor must understand the profitability and growth potential of the company. To estimate profits, it is important the investor gauge all the metrics like stock charts, news, rumors, company metrics, and fundamental analysis of the company.
It can be tricky to identify the value of a company’s stock price and determine the future value of a company. Various variables influence the movement of the short-term price of a company’s stock. Many investors believe these variables are random, but they aren’t exactly. Eventually, a company’s stock determines the present value of all profits that the company will yield. However, a company’s share price is volatile and keeps fluctuating. Even when there are no profits the company will trade the shares as the investors believe in the future earnings of the company. But a company’s stock price says a lot about the true value of the company.
At times as a trader you will find it tricky to determine the nature of the market, but you also have access to a database of numbers and data to fall back upon. You can always depend on the price trends in the market. You can scrutinize how the advances and declines are progressing in the market. It’s more of research than speculating when it comes to the market. This is very untrue in gambling as you don’t have access to facts and figures to fall back upon.
Unlike gambling, trading is a game of skills which requires discipline and knowledge of fundamentals. In gambling where the future is dependent on a spinning wheel in trading, it depends on technical metrics like charts, trends, and patterns which helps you make trading decisions. In gambling, you don’t have access to facts and figures which increases the risk factor in gambling as compared to the Indian stock market.
Is stock market gambling? Let us understand the key differences between gambling and investment.
Gambling is more like a zero-sum game. Only with this strategy casinos can sustain in the long run. However, when we talk about trading in the Indian stock market it is not a zero-sum game. If you abide by basic discipline and trading rules the money coming back to your pocket is more consistent than gambling.
In gambling, you cannot limit your losses as you can do in the Indian stock market. This is one of the major differences between gambling and investment. However, an investor can control losses by minimizing the risk factor.
The time factor in both gambling and stock market investment is different. Gambling is a time-bound event while investing in stocks of a company is an event of several years. With gambling, once the game is over, your opportunity to profit from your wager has come and gone. You either win or lose unlike stock market investment which is a process of several years and the returns vary depending on the risk factor.
When it comes to controlling the outcome you can be more reliable on the Indian stock market than gambling. In gambling, the gambler has limited control over the outcomes. Gambling is the game of probability that purely works when the odds are in your favor. But as a trader, you will have a lot more control as compared to a gambler. In the Indian stock market discipline and expertise is your best defense to make the most out of the market uncertainty. Better control over the outcome makes it another crucial difference between gambling and investment.
When it comes to gambling at a casino, the casino is the counterparty. The casino will ensure that the gambler does not make so much money that it brings the house down. Hence the odds working in your favor in gambling are lesser. Unlike the stock exchange does not interfere and just executes trading for everyone. A stock exchange facilitates trading and is indifferent to the amount of profit made by the investors.
Gambling becomes addictive when you make profits and end up losing everything while trying to make more profits. On the other hand, trading is a game that needs skills and discipline. The priority in stock market investment is managing risk appetite and protecting yourself against losses. The profits in trading are slower but more sustainable as compared to gambling.
You can get your hands on ample information related to the Indian stock market to earn more profits. But you have no idea what happened at the casino table one hour ago. The Indian stock market offers quantified information in terms of company profits, management, and other fundamental factors. Before investing you can make a thorough analysis of these factors with stock and company information available in the public domain. This is quite impossible when it comes to gambling.
Is trading gambling for you? Read the signs below which will tell if your investment strategies are like gambling or not.
If you seriously want to earn money through investing you can either devote your time to learn the fundamentals or take the help of professional advisors. The advisors may charge for their expertise, but they are more reliable than any free advice.
When you start investing always remember the famous quote by Benjamin Graham- “In the short run, a market is a voting machine, but in the long run it is a weighing machine.” It means that the market isn’t easy to predict basis the short-term sentiments. Whereas the long-term results can be measured concretely with the help of thorough studies. Without researching investing in the hot news doesn’t come in the category of investing.
If you invest in single stock the risk factor increases. If you do so it is betting your money in single stock which is the worst form of gambling. Even if it is an opportunity backed by research you can go wrong and lose your hard-earned money with this move.
You should understand the balance between risk and reward. Never use your emergency fund to make short-term trades. Short-term investments are risky and cannot be easily predicted which is a sign of gambling.
Understanding the strategies of investors who made big in the Indian stock market can be challenging. No matter how carefully you track their investments. Also, a common investor will not have access to the resources available to big investors. Investing blindly in what big players are purchasing is undoubtedly a sign of gambling in stocks.
When you are addicted to trading to a greater extent which leaves you stuck with your phone/laptop screen throughout the trading hours it is a sign you are gambling. It is important that you are patient with your investments and do not involve yourself emotionally.
As a closing thought don’t believe that trading and gambling are the same. Stock market investment involves more science, discipline, and control over outcomes.
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