Isn’t investing in the stock market just gambling?
ISN’T INVESTING IN THE STOCK MARKET JUST GAMBLING?
It should come as no surprise that the biggest football game of the year ranks as one of the most popular events to gamble on. The American Gaming Association estimates that over 23 million people in the US will wager around $4.3 billion on the big game. It should also come as no surprise that some of the money wagered will be lost, as the old adage goes ‘the house always wins.’
Recent speculative events in the financial markets have provoked many to question if investing in the stock market is akin to gambling. While there may be similarities, such as the risk of losing money, the probabilities of having a positive experience in the stock market are much greater than traditional gambling, especially when you take a long-term approach.
When you buy a stock you become an owner of that company and are entitled to a claim on earnings and dividends into perpetuity. Stock prices fluctuate based on new information and the expectations of companies to generate profits, and prices settle at a level where there is a positive expected return. When you gamble, money is simply transferred from one party to another and no value is created, but odds are generally stacked against the players.
Exhibit 1 illustrates the historical outcome of success when investing in the stock market, using the S&P 500 as a proxy. Even over the shortest time period, 1-day, there has been a 56% chance of achieving positive returns. As you extend the time frame the probability of earning positive returns in the market increases.
The take away: The longer you sit in a casino the greater the odds you’ll walk out a loser, the longer you stay invested in the stock market, historically, the greater the probability you’ll experience positive outcomes. Unlike gambling, we believe the house is on the investor’s side when taking a disciplined, long-term approach to investing.
Source: The Lines: How Much Money Will Be Bet on the Super Bowl In 2021?
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