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During drops in the stock market some people have compared investing to gambling, saying it is...

During drops in the stock market some people have compared investing to gambling, saying it is no better than flipping a coin or playing a number on a roulette wheel. How is investing like and how is it different from gambling?

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Answer #1

Gambling and investing both involve risk. Gambling is wagering or betting, wherein, the gambler takes risk to make a windfall profit and hopes he is lucky. Investing also assumes risk. Investor takes some risk for future gains.

But there are differences between gambling and investing

The odds are against the gambler whether it is horse racing or casino gambling. A gambler is certain to lose something. This is not present in investing.

There is lack of or insufficient information in gambling. The gambler may have to make decisions immediately. The investor, on the other hand, can study the financial reports of the company and its business prospects and can make an informed decision.

The gambler looses all his money, whereas, the investor can place a limit on his losses through options like stop losses on stock.

Gambling is one time and short lived. Investing is a long term prospect.

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