The pandemic brought out new stock market investors by the millions. Three major contributing factors for this trend were:
- Stimulus Checks.
- Free trading platform Robinhood.
Veteran investors thumbed their noses at these “newbies” – mocking their inexperience and accusing them of treating the stock market as their personal Las Vegas.
Be careful of criticizing newbie stock investors for gambling because your investing habits may put you in the same category as you’re boxing these investors in. You may brush off your investing habits as “speculating” and not gambling. There’s a difference, you say.
Speculators claim to be different from gamblers. They claim their investment decisions are based on research and education and not on pure dumb luck. These are the same people who claim to be able to beat Vegas at its own game.
The truth is, nobody beats Vegas at its own game over the long haul. You may have a lucky day here or there, but the house always wins in the end. So, let’s cut to the chase. Speculating is gambling and not investing. Just look at the definition of investing vs. gambling.
To invest means to:
“expend money with the expectation of achieving a profit or material result by putting it into financial plans, shares, or property, or by using it to develop a commercial venture.”
On the other hand, gambling means:
“the wagering something of value on an event with an uncertain outcome with the intent of winning something of value.“
To me, investing means committing money to something with a realistic expectation of a return. Gambling is committing money to something where the outcome is uncertain.
We’ve established that gambling is not investing, and here are the five signs that you’re a gambler and not an investor.
You’re More Interested In Short-Term Gains – If you have no long-term investment goals and are more interested in short-term wins, you’re a gambler. Short-term investors are bettors. What do they bet on? They’re betting that they can time the market better than anybody else and that they can beat the market.
We’ve already established that nobody can beat the market consistently. Investors may have a good day here and there, but even professional market timers (i.e., fund managers) fail to beat the market consistently over time.
You Base Your Investment Decisions On Social Media And The Internet – Gamblers are at heart superstitious. They’re constantly looking for signs to bet one way or another. Stock market gamblers are no different. They’re constantly scouring social media, the internet, and the news for signs and indicators of where to put their money.
They ignore sound economic fundamentals in favor of what’s buzzy and trendy when making their investment choices. If this describes you, you’re a gambler, not an investor.
Savvy investors ignore the noise and look at the data. They’re interested in the underlying economic fundamentals and the long-term prospects of an investment. They’re more interested in time than timing. How will the investment perform over time?
If You Target Individual Stocks For Homeruns, Then You’re A Gambler – Savvy investors are more interested in winning the game than just hitting a single home run at one at-bat. They think big picture. What’s going to get them to their ultimate goal of winning the game? Or, in their case, the goal of financial independence. They know it will take a long-term strategy, not just one home run.
Gamblers are only interested in hitting home runs. They would rather bet the farm on a single stock than devise an overall strategy for achieving long-term success.
You’re More Interested In What The Herd Is Doing And Suffer From FOMO – If you’re more likely to invest in what everyone else is investing in because of the fear of missing out (FOMO), you’re a gambler, not an investor. If nothing goes into your investment decision other than the fact that everyone else is doing it, you’re gambling.
You have no realistic expectation of a return – the basis of the definition of investing. Instead, you leave everything up to chance because FOMO is a more powerful force than basing your decisions on sound investment strategy.
You’re Willing To Invest In Something With Little To No Value – If you’re willing to invest in a stock where the underlying company is floundering or worthless, then you’re a gambler. As long as you can sell the asset down the road to a bigger sucker, you’re ok with your investment strategy.
You’re alright investing in cryptocurrency with no real-world use or widespread adoption as long as there’s demand for it. Once again, your rationale is that as long as you can sell it higher than what you bought it for, you’re ok taking the chance.
Savvy investors don’t gamble. They don’t speculate. They leave little to chance. And they do this by thinking long-term.
They invest in assets that, over the long term, are unaffected by general market volatility. They invest in assets with underlying value – value that will always endure no matter what the public’s latest sentiment is. People will always need shelter. Consumers will always need food and energy to heat their homes. These are the types of assets smart investors gravitate towards – ones with long-term demand.
Smart investors, above all, ignore the noise.
They ignore what’s trending on social media and are more interested in long-term trends and performance. They look at the data and the numbers and not at their friends when making their investment decisions. This is what sets them apart from gamblers.
Are you a gambler or an investor?