Can betting be considered a type of investment?

There is a fine line between investing and gambling in new betting sites as there are many similarities between the two concepts which tend to be mistakenly confused by those who do not understand the markets.

Those people who have never invested in the markets perceive investing in the stock market as if they were betting in the casino and that is the reason why they have never been encouraged to do so. But investing in a diversified way has always been profitable in the very long term, at least in developed countries and with the long term in favor.

There are analogies between the two processes since not even the best market analysts know what will happen in the near or distant future, which is why investing is always speculating based on a selection of the most suitable assets at a given moment in time. Speculation is an essential part of the dynamics of the markets.

In many investment recommendations, there is talk of betting on a value. Even the most conventional and reputable analysts sometimes use this term when suggesting buying a stock. However, although to a certain extent there are similarities between deciding on a stock and trying your luck at a game of chance, investing is not gambling in the casino.

Invest vs bet

Similarities:

  • Both activities are done to earn money: although there is the possibility of losing, the intention in both cases is to increase our wealth.
  • Normally, you decide in advance (or so you should do) what risk you are willing to take, how much you are willing to lose.
  • There is an important psychological component, both in the emotion that both activities can cause, as well as in the tension and ability to withstand the pressure that is required when making decisions.
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Differences:

  • Investing should not be equivalent to gambling. When a bet is made in the casino, the laws of chance apply, so the chosen option is as good as any other.
  • However, as it is easy to understand, when it comes to investing it should not be like that, but there will be alternatives that, at least theoretically, are better.
  • Obviously, even with a good methodology, it is difficult to get it right 100% of the time. As it is about obtaining a return on our money, the objective would be to get more right than one is wrong, and (related to the above), to clearly establish what our limits are.
  • A value is bought.

When you make a bet, you risk money for nothing. Or, put another way, to the more or less remote possibility that it touches something.

However, when you invest, you are acquiring an asset —for example, shares— from which you can obtain returns in different ways: by dividends, by buying and selling, by renting, etc. Therefore, unlike betting (which ends when the draw occurs), the investment can provide returns for many years.

Investment must be based on information

When you bet in the casino or play the lottery, we only depend on chance, it is a matter of probability. However, when investing, we should rely on information. The two main streams of investment research, technical analysis and fundamental analysis, are based—each in its own way—on data.

It is not invested by chance, by fashion or chance, it is invested because there are reasons behind it. One of the fundamental investment gurus, Benjamin Graham, Warren Buffett’s teacher, stated that ‘an investment operation is one that, after exhaustive analysis, promises security for the main capital and an adequate return’.

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Speculation vs investment

Although it is clear that some investors act as speculators, it is also true that those who bet in the casino are not investors at all. Although they apply some mathematical system to try to fine-tune their chances, they are looking for a lucky win, and they want it in the short term. The investor who considers himself as such prefers not to speculate and usually acts thinking about profitability in the medium and long term.

How profits are distributed

In betting, although someone may have a hot streak or use some technique to try to take advantage of the statistics, as they say, the bank always wins. And it is that the odds play against those who bet from the first moment: in roulette there are 18 red numbers, 18 black and zero, which is the one with which the bank wins. Which implies that, in each bet, there is only a 48% chance of winning. And the more we play consecutively, the less chance we have, since at some point we can be left with nothing.

However, when you invest, and you do it based on a good method, the odds rise. Especially long term. It’s also good to remember the two rules of master investor Warren Buffett: First, don’t lose money. The second, never forget the first rule.

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