InvestingIs Investing In The Stock Market Gambling?
Stock investing and gambling; two terms that are interlinked with one another. In fact gambling cannot be taken out of stock investing. No matter how small its effect on stock investing, gambling is there and one way or the other this affects how the stocks behave. One link that can be seen between investing and gambling is the concept of house edge.
Just check the case of casino games or the game of roulette. In the game of roulette, 37 numbers are available. So if a person tags his bet at $2 and it wins, the person will receive $72. And if you bet all the 37 numbers then the number that will win will net you $72. Remember that the person have placed bets on all the numbers for $74. Even if the person wins, he actually lost that $2. This kind of set-up in the game is what is called as the house edge.
A careful check will reveal that the house edge is pegged at 1/37 which is around 2.7 percent. So every time a person places the bet, the return of investment for a person should be 2.7 percent less than the original 100 percent. So whenever a person plays, it should be expected that money will not be easily recouped. Rather a person should be prepared to what a house edge means in many games like roulette.
This is the same with picking stocks; and the concept of house edge is alive and kicking in the wild world of stock investing though in slightly different form. The house edge in the game of stock investing assumes a different form, but the intention remains the say. The house edge in stock investing can be called the broker fees and the commissions.
These are fees that you pay no matter how you make gains in your investments. High up there or just slightly making the profits, these fees are there and needs to checked and paid. The moment you make gains, then for sure you will pay for a fee as well. These fees can be likened to the house edge in many gambling games as like as these fees also eat into the person's expected profits. So it is suggested that a would-be investor is advised to hold on the stocks for a longer period of time.
Gambling and stock investing may share some general characteristics, but these two things also have distinctive differences as well. One significant difference between the two is the search for the tangible and the intangible. The moment a person places a bet in a casino game, then that person is known to be buying a chance or an opportunity of winning. This is known as the intangible product.
When picking stocks, a person is investing in a business and this is a tangible thing. Picking stocks and gambling also differs somewhat in the general motivation of the person. People gamble generally for fun and people invest for profit. But the perhaps the most important similarity between the two is the amount of risks involved in picking stocks and in gambling.