Why Stock Market investing isn't gambling
On the surface there appears to be quite a similarity between the stock market and gambling. You can make a lot of money and you can lose a lot of money in a very short period of time. However the similarities are only superficial and there are some fundamental differences between the way the stock market and gambling work. Understanding these differences and why stock market investing isn't gambling is important if you are going to be a successful investor.
The main reason that stock market investing isn't gambling is that you have much better odds of success with the stock market. When you go to the casino the odds work against you, while you can certainly win in the short term if you gamble long enough you will lose. This is because the house has the advantage. The stock market on the other hand works in completely the opposite way. Over time the stock market will increase therefore the odds are actually working in your favor. That means that while you may lose money in the short term if you stay in it for long enough you should make money.
The other big reason that the stock market isn't gambling is that the results are not random. When you are gambling the results normally come down to pure chance, the roulette wheel lands on your number or it doesn't. The odds are the same regardless of which number you pick. With the stock market on the other hand well run profitable companies will be rewarded by seeing their stock value increase while poorly run companies will see their value decline. This means that the odds are not random; you can be successful by choosing the best companies.
Another difference between the stock market and gambling is that there is no end of the game with the stock market. When you play blackjack for example if you lose that hand the money is gone, that hand is over. However with the stock market if the value of the stock that you buy declines you do still own the stock. That means that if the price goes back up you will regain the money that you lost. This is an important and often overlooked difference. Being able to stay in the game is critical to winning.
While the stock market is not the same as gambling a lot of people tend to treat it like it is. If you are picking stocks for no good reason or if you are constantly jumping from one stock to another then you really are gambling. However if you put some thought into what stocks you buy and you have a plan and take a long term view then you have a much better chance of seeing positive result than you would have if you went to the casino.