What’s the difference between investing vs. gambling? The simple answer is math, but there’s more to it than that.
In my mid-teens, I went to Atlantic City with my family for an evening on the boardwalk. I was deeply interested in money for someone my age, so gambling intrigued me.
You must be over the age of 21 to enter the casino floor in Atlantic City, but kids are allowed inside the hotels. We entered one of the glitzy hotels owned by a certain famed politician at the time, and my parents went to play a few slots.
Hours earlier at the beach house, I gave my Mom $3 in quarters and asked her to play them for me in a slot machine. I gave her strict instructions to play one quarter at a time and to walk away with the proceeds after playing all 12 coins.
I watched from a distance as she followed my instructions. She came back with about $5. I was disappointed to not hit the jackpot but proud that my strategy returned a profit.
Since I thought I knew a lot about money, I believed I’d be good at gambling too.
Clearly, I had a lot to learn about investing vs. gambling.
After a decade of attending bachelor parties in Atlantic City and Las Vegas, I learned that I’m bad at gambling.
I lack the discipline to play “like you’re supposed to” in blackjack.
The one time I tried craps, I crapped out to the tune of $100 in less than five minutes.
Slots are fun. But terrible outcomes are inevitable.
Almost everybody sucks at gambling — because of math.
The longer you spend gambling at a card table, roulette wheel, craps table, slots, or whatever game you like, the more likely you will lose money.
Before some of you get defensive, I’m talking about gambling against the house. I understand that there’s an element of skill for certain card games such as Texas Hold’em Poker when you play against other people.
The biggest sucker at the table loses.
There’s also some card counting and stealth partnering skills that can be applied to blackjack that may give a very small minority of players a slight advantage over the house.
But that doesn’t apply to 99+% of gamblers.
There’s a certain kind of machismo you see at casinos. “High rollers” dress nicely and look as though they know how to win. That kind of behavior might attract an audience for the evening, but probably not a profit.
Nearly all of us lose eventually. So the key is to gamble for fun, set a firm limit, know when to quit, and not develop an unhealthy addiction.
Despite being bad at gambling, I still love casinos.
I love the aromas piped into the lobby, the free drinks, the extravagant bars and nightclubs, the bustle, and the camaraderie at the pai gow table.
I enjoy a visit to the horse betting room, knowing that I’ll walk out with more money in my pocket than nearly everybody else without placing a bet.
Casinos are the perfect vice for a night of drinking, gambling, and entertainment without the kids. That’s my kind of fun every once in a while.
Investing vs. Gambling
Investing is not gambling if it’s done properly. Gambling is certainly not investing.
Here’s how the Merriam-Webster dictionary defines investing:
To commit (money) in order to earn a financial return. To make use of for future benefits or advantages.
The same dictionary defines gambling this way:
To play a game for money or property. To bet on an uncertain outcome. Take a chance.
Gambling games have odds. Those odds are calculable and become more accurate the longer a player plays.
Investing in the stock market is often compared to gambling, but investing is not a game.
Certain strategies are akin to gambling, like trading penny stocks, short-term speculation, and unprotected option strategies.
Those strategies should be avoided.
Properly investing in stocks, on the other hand, involves the thorough analysis of real-world data.
The stock market favors long-term investors and there is no house. The longer the period of time you invest, the more likely you’ll make money, unlike gambling.
From day-to-day, who knows what the market or any individual stock will do. But the long-term average annual increase of the S&P 500 Index is about 9%.
Another major difference between investing and gambling is ownership. When you buy a stock, you become a part-owner of a business. That business sells products and services, earns revenue, pays dividends, and has intrinsic value.
The company trades on a marketplace which fluctuates day-to-day, sometimes dramatically. But if you consider your investments as part of a long-term business instead of a risky bet on daily stock directions, you’ll be more likely to succeed.
With gambling, you’re nearly guaranteed to eventually lose. The math tells us so. Investing vs. gambling are not like each other at all.
Your Money or… Your Life
A giant $1.4 billion casino recently opened not far from my house. The evening of the grand opening, helicopters from the local news stations hovered all night above the massive traffic jam keeping awake nearly every child in our zip code.
For three years, I commuted past the construction site monstrosity almost every day as it was being built.
My wife and I waited a few months before visiting one of the casino restaurants on a rare date night.
Knowing my love of casinos and gambling (and respect for the math), I declared that I would never bet a dollar in that place. It’s too close, and gambling addiction is too dangerous.
I recently learned that someone I know ruined his financial life by spending it all at a local casino. At his age, he should be retired.
At this stage in my life, I’m confident that I have enough self-discipline to avoid becoming a gambling addict. But why risk it when the casino is so near? I’ve lost money at the blackjack table and quit, only to return a few hours later in hopes of winning it back.
The Force is strong in casinos. An addiction would quickly become the greatest risk to my early retirement goal. It’s not worth testing the waters so close to home.
I’ll save my strict gambling budget for the next time I’m in Las Vegas or Atlantic City. As a suburban Dad with zero single friends, I don’t expect that invitation any time soon.
Do you like to gamble? What’s your take on investing vs. gambling?
Photo by ThomasWolter via Pixabay
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