Stocks Trading: Is It Truly Similar to Gambling?

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The markets are increasingly volatile year after year. With all the uncertainty out there, an increasing number of individuals – mostly outsiders – tend to consider investing in stocks to be just as risky as to play slot machines visit Royal Vegas Canada. It’s a bold statement, made – to be honest – mostly by outsiders. Still, can it have at least a grain of truth behind it?

Risk and choice

Investing in stocks and gambling online at the Royal Vegas Canada do have some similarities. First and foremost, both of them involve taking risks and making choices.

Gamblers must first decide whether they want to put their money on the line or not. Playing at the Royal Vegas Canada can involve real money, but it can also be done for fun, as a form of entertainment. Truth to be told, there are some trading simulators out there, too, turning investing into entertainment (for some, that is), but these are pretty far from the intensity and entertainment value of what the Royal Vegas has to offer. After all, the Royal Vegas is an entertainment venue, with much less emphasis on the money making part.

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Just like gamblers, stock investors take risks, but their risks are much more fact-based and calculated. Their risk management strategies are built to minimize the risk they take, and often include diversification across various asset types.
At the same time, most forms of gambling are simple as flipping a coin – players will either win or lose, with nothing in between.

Looking for an edge

Both good gamblers and good stock investors are always looking for an edge to maximize their potential to win. Investors seem to have an easier task, though.

First of all, stock investors have much more information at hand based on which they can decide whether to move on with their investment or “fold”. The information about company earnings, financial records, and management teams is readily available for public access, and can be studied before making the decision on committing any capital to a certain company.

In case of a gambler – say, a poker player – all this information has to be obtained through more unorthodox ways. When playing poker, a good gambler will always try to gather as much information about his opponent as possible, much like a good investor. This information is not publicly accessible, though – poker players have to observe their opponents, learn their mannerisms and betting habits, and try to predict their future behavior based on this scarce data.

Although there are, indeed, similarities between gambling online and investing in stocks, the differences are also major. Gambling is a short form of entertainment, done for fun rather than a living. While investors, too, risk a part of their capital hoping to increase it in the future, their activity is much more calculated. It does involve risks, but these risks are much easier to manage than in the case of a video slot machine.

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Ankur Shah is the founder of the Value Investing India Report, a leading independent, value oriented journal of the Indian financial markets. Ankur has more than eight years of equity research experience covering emerging markets, with a focus on India and South East Asia. He has worked as both a buy-side investment analyst for a global long/short equity hedge fund and a sell-side analyst for an emerging markets investment bank. Ankur is a graduate of Harvard Business School. You can learn more about his latest views on global markets at the Value Investing India Report. -- He can be emailed at AnkurShah47@gmail.com
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