Isn’t Investing Just Gambling?

by | Feb 16, 2022 | General

No, it’s better, because the odds are in your favor

After watching Super Bowl commercials this weekend, it’s pretty clear that there’s a lot of gambling going on. Several commercials highlighted apps that allow you to trade crypto-currencies & stocks in the same app. And several others were about apps that let you bet on sports. 

We often write about the distinction between speculating vs. investing. But clearly there’s some overlap. It’s easy to speculate in stocks, which usually entails buying shares in a relatively new company in the hopes that the business changes dramatically for the better, and you can sell those shares at higher prices. 

Some people in the stock market don’t even go that far in their analysis. It’s simply “buy it now, because the price will go up.”  When someone treats a stock this way, it’s quite similar to betting on the coin toss at the Super Bowl. 

One reason why that’s generally not a good idea is because the odds aren’t in your favor. Take sports betting. Putting money on the Golden State Warriors each and every game sounds like a great way to win. The Warriors will win most of their games and so you should win most of the time. But the bookmakers know this too, and so they establish a point spread to make it more difficult. That additional factor makes the prospects of betting on the Warriors more of a coin toss. Sure they’ll probably win. But will they win by more than 8.5 points tonight?

Investing in great businesses is like betting on the Warriors without a point spread. Buying a collection of very profitable companies gives you an unfair advantage. This is because, as a group, this collection of companies will continue to grow and make money. As a part owner, you enjoy a tailwind of growing profitability.  

So is investing in Apple just like gambling?

If your timeframe is the next few minutes, days or weeks, sure it is. But if your timeframe is measured in years, you have an unfair advantage vs. the speculator. Long term investors put the odds in their favor.

Best regards,

Evan McGoff

Disclosure: Dock Street Asset Management, Inc. and our clients own Apple (AAPL). This article is not intended to be used as investment advice.

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