PLAYING STOCK MARKET IS GAMBLING OR INVESTING ? WHAT YOU WANT TO BE……….

On the surface there appears to be quite a similarity between the stock market and gambling. You can make a lot of money and you can lose a lot of money in a very short period of time. However the similarities are only superficial and there are some fundamental differences between the way the stock market and gambling work. Understanding these differences and why stock market investing isn’t gambling is important if you are going to be a successful investor.

Investing in the stock market is not supposed to be gambling. It is supposed to be about making an investment and seeing your money grow over time. Unfortunately a lot of people treat it just like gambling. You can definitely gamble on the stock market if you choose to, but it is not a good idea.

The main reason that for some people stock market investing is gambling is that they have way too short of a time frame. Over time you expect that the stock market will increase however there will be short term fluctuations. There are a lot of people who jump from stock to stock hoping to take advantage of these fluctuations. The people who do this are gambling in part because the odds that would normally be in their favor if they bought and held stocks no longer are and in part because over the short term the change in the price of a stock often occur for no good reason.

The fact the price of stocks change over short periods of time is a major issue if you are only holding the stock for a short time. Over time well run successful companies will see the value of their stock increase and poorly run ones will see the price decline. This is something that investors can predict however if you are buying and selling on short term fluctuations you are basing your decisions on nothing but chance and at that point you are gambling not investing.

Another reason that stock market investing is gambling for a lot of people is that they put all of their money into a very small number of stocks, often in the same industry. Diversification is important for an investor, not every stock you pick will go up in addition some industries will be strong while others are weak. This is why you want to be invested in a number of different stocks spread across several different industries. If your portfolio lacks diversification you are gambling on the few stocks that you have increasing. This is too big of a risk for an investor to take. You have to know that some of your stocks will go up and others will go down.

Stock market investing for is gambling for a lot of people because they don’t understand the basic concepts of money management. You have to know how to make sure that you are limiting your risk when you invest your money. You also have to make sure that you have a plan. You need to know what you are going to buy and why you are buying it. You also need to have a plan for when you are going to sell. A lot of people put a lot of thought into what to buy but almost no thought into the much more important decision of when to sell. If you are doing this then you are gambling.

Investing is very much like gambling. The big difference is time

“The trick to investing is not buy and hold, it’s buy and re-balance,”

This means is keeping your portfolio mixed with equities and debt at whatever risk level you wish to have. For instance, if you want to have 50% stocks and 50% bonds, then when your equities post gains, your portfolio could suddenly become weighted 55% stocks. This would be a sign to fix your asset balance by selling some stocks and putting the proceeds back into debt until you got back to that 50-50 mix.

“You do want buy low and sell high, but you gotta do it smart.”

Investing is slow and steady

Investing is the process of putting money at risk in order to get a return. It’s the way that businesses get started, roads get built, and explorations get financed.

Investing is very much focused on the long term. Good investors do a lot of research before committing their money because they know that it will take a long time to see a payoff. Investors often invest in things that are out of favor, because they know that, with time, others will recognize the value and respond in kind.

In contrast to investing, day trading moves fast. Day traders react only to what’s on the screen. There’s no time to do research, and the market is always right when you’re day trading. You don’t have two months or two years to wait for the fundamentals to work out and the rest of Wall Street to see how smart you were. And if you can’t live with that, you shouldn’t be day trading.

Day trading works fast

Trading is the act of buying and selling securities. All investors trade, because they need to buy and sell their investments. But to investors, trading is a rare transaction, and they get more value from finding a good opportunity, buying it cheap, and selling it at a much higher price sometime in thefuture. But traders are not investors.

Traders look to take advantage of short-term price discrepancies in the market. In general, they don’t take a lot of risk on each trade, so they don’t get a lot of return on each trade, either. Traders act quickly. They look at what the market is telling them and then respond.

They know that many of their trades won’t work out, but as long as more than half work, they’ll be okay. They don’t do a lot of in-depth research on the securities they trade, but they know the normal price and volume patterns well enough that they can recognize potential profit opportunities.

Trading keeps markets efficient because it creates the short-term supply and demand that eliminates small price discrepancies. It also creates a lot of stress for traders, who must react in the here and now. Traders give up the luxury of time in exchange for a quick profit.

Speculation is related to trading in that it often involves short-term transactions. Speculators take risks, assuming a much greater return than may be expected, and a lot of what-ifs may have to be satisfied for the transaction to pay off. Many speculators hedgetheir risks with other securities, such as options or futures.

Gambling is nothing more than luck

A gambler puts up money in the hopes of a payoff if a random event occurs. The odds are always against the gambler and in favor of the house, but people like to gamble because they like to hope that, if they hit it lucky, their return will be as large as their loss is likely.

Some gamblers believe that the odds can be beaten, but they are wrong. They get excited about the potential for a big win and get caught up in the glamour of the casino, and soon the odds go to work and drain away their stakes.