I was at a Japanese steakhouse last night, sipping on some beverages and eating sushi with friends. A gentleman overheard us talking about stocks. He yelled across the bar, “Trading is gambling! I lost all my money on CHK. The game is rigged!”
I did the best I could to tell him what I’m about to tell you, but he wasn’t having any of it.
In case you get faced with similar opposition, here is my take on why the stock market is not gambling.
It’s called Investing
I mean, the heart of the stock market is built around investing! The real estate market is not seen as gambling by the vast majority of participants. What’s the difference between real estate and stocks? Simply put, most people understand real estate. It’s a physical, tangible assets they can see, feel, touch and understand (usually). Of course, people can lose money in real estate investing, but the losses often aren’t as quick and therefore not as painful. When you buy and own shares of a company, you are investing in that company. You literally own a percentage of the company when you buy shares. Of course, it’s a very small percentage, but you have a stake in it. And you can get paid to own these shares through a wealth distribution known as dividends. The craps table will never deliver that.
You Can Control Your Risk
I like to think I know a lot about gambling. I wasn’t a “rounder” as they are known, but I played poker in college often. And usually, I did so to attempt to pay my bills. I wasn’t great by any means, but for that first hour, if I sat down and made $100-$200 I left. Texas hold ‘em was my game of choice. And I’m here to tell you right now, if you put your money in the pot and you’re wrong, it’s gone! There is no second chance, or risk mitigation plan. You’ve lost. Especially if you go all in, you’re fully out when you lose! In the stock market, you can always control your risk. YOU can dictate how much you lose on any given trade. It’s like being able to see all 4 of the 5 cards, going all in and still being able to pull out your money on the 5th card if you don’t like the results.
Those are the two simplest replies to the argument, “the stock market is gambling!” That’s just someone’s fear and bad experience. Understand they are probably upset and angry over their past predicament and hurt by their losses. As investors, we can absolutely control our risk and know exactly how much we’re going to lose on a trade. And, even that loss can be mitigated with good stop placements.
I’ll be sharing more insight with you very soon on how I personally mitigate risk! Until then remember – love life, live life, and trade it!
