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A better question might be: How is anything an investment? If the stock market is priced efficiently, it is as much a gamble as Bitcoin. The stock market is of
by darawk 9y ago
A better question might be: How is anything an investment? If the stock market is priced efficiently, it is as much a gamble as Bitcoin. The stock market is of course not perfectly efficient, but it is likely extremely efficient relative to the knowledge of your average retail investor. Which means that buying Bitcoin or other cryptos is no more a gamble than any stock market investment with a similar volatility.
- dlubarov 9y agoA perfectly efficient market can still have investment opportunities with nonzero expected gains, as long as there's a shortage of capital.
- paulgb 9y agoIf the market is priced perfectly efficiently you will still make money because your capital is put to work. A perfectly efficient market just means you can't beat that intrinsic rate of return.
- ZitchDog 9y agoWouldn't this expectation be built into the current price of the stock?
- paulgb 9y agoYes, but money in the future is valued at a discount today. So even if an asset is 100% sure to be worth $100 a year from today, the market will value it at slightly less than that because there's no sense tying up $100 in capital for a year unless you get some profit in return.
- brokensegue 9y agothe risk you take for those returns means the price won't fully match the expectation. but you can mitigate that risk via diversification.
- darawk 9y agoTrue. But that is irrelevant to the original point: Cryptos are as much investments as any stock or commodity. And anyway, that future expectation of profit ought to go into risk-free treasuries unless you want to gamble on a specific, higher risk asset.
- frgtpsswrdlame 9y ago>If the stock market is priced efficiently, it is as much a gamble as Bitcoin. Well... we're just shoving a poor definition of investment off onto a poor definition of gamble. If potential drawdown could be considered part of the risk of 'investing' )or 'gambling') then Bitcoin is definitely more of a gamble.
- AznHisoka 9y agoI also think the stock market is not "investing" but think it's safer to invest. 1. There's more government regulation and less manipulation. 2. New money is constantly flowing in, via 401K's and pensions. Most people aren't even aware they're invested in the stock market. 3. The government cares so much about the stock market doing good. Look at how Trump brags about the booming market. If it goes in a funk, the government will think of ways to prop it back up. That said, without any of those 3 things, stocks are just as a gamble as bitcoin. People say "past is not a predictor/indicator of the present", yet they love to say "stocks return 7-8% annually, and you should just invest in an index to enjoy such returns". Why? That's such as a huge assumption that everyone takes for granted.
- graedus 9y ago> less manipulation > If it goes in a funk, the government will think of ways to prop it back up I don't disagree with the second statement. I guess what you're saying is that there is manipulation (talking about government intervention in this case) but overwhelmingly in the "right" direction?
- vec 9y agoSure, yeah, the market is systematically manipulated to my benefit, and those manipulations are done in a largely transparent manner. That makes it a more attractive investment target than a market which is not.
- darawk 9y agoYep. No argument from me there. Most mainstream stocks are safer investments than cryptos, along a number of axes (volatility, counterparty risk, regulatory risk, etc..). But cryptos are still very much investments.
- joshuahedlund 9y ago> People say "past is not a predictor/indicator of the present", yet they love to say "stocks return 7-8% annually, and you should just invest in an index to enjoy such returns". Why? That's such as a huge assumption that everyone takes for granted. Well, you're leaving out something something about the company putting your money to use to increase efficiency or output something something and something something about dividends from the proceeds, none of which you have with cryptocurrencies. (Though it may be disputable whether those are truly the reasons behind the historical returns of stocks and thus good reasons to expect it to continue, even if you wouldn't guarantee the exact numbers, or if those are simply motivated reasons that may or may not be reliable future indicators...)
- Retric 9y agoWhat separates investing from gambling is the expected return for everyone is greater than zero. AKA buy stock at 100$ and sell it at 100$ does not mean you broke even. You could have gotten 10$ in dividends. Now that positive may be small and some people may lose money, but that's allowed as long as the expected returns end up positive. Bitcoin's can't have a net positive return because they only way to add money into the system is via coin buyers. Further because of transaction costs it's inherently negative sum.
- AznHisoka 9y agoWhat about stocks with no dividends (which constitutes the vast majority)? By your definition, only dividend investing and rental property investing is true investing. I'm not disagreeing with you. In fact I almost agree with you, but your argument fails for most stocks.
- ckinnan 9y agoThe vast majority of mainstream stocks PAY dividends-- in fact about 420 of the S&P 500.
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- umanwizard 9y agoStocks with no dividends have some probability of paying a dividend (or doing a buyback) in the future. If you could prove that a company will never pay a dividend or do a buyback then its value would be zero.
- tonyztan 9y agoWhat about Berkshire Hathaway? They said they wouldn't pay dividends.
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- Aunche 9y agoThe difference is that with investing, you have a reasonable indication where your investment will end up in the future. Chances are, in 10 years Walmart is still going to be profitable and continue to pay out dividends. There's no telling what will happen to Bitcoin in the next week, let alone the next year, so it's a gamble to put your money in Bitcoin.
- chirau 9y agoDo you not see how you are contradicting yourself? "Chances are" alone, is an assumption. How is that any different from your speculation on Bitcoin. The only difference is longevity of the window period, otherwise it's the same principle.
- Aunche 9y agoThere is always going to be some degree of uncertainty with any action. Just because a meteor can fall on your head if you walk outside doesn't make it a gamble to do so. There's a fine line between investing and gambling, but the extreme ends of the spectrum should be obvious.
- darawk 9y agoI'd argue that the difference between investing and gambling is that gambling has known negative expected value, whereas investing is uncertain. If it is not known that the outcome of a gamble has negative EV, then a reasonable case can be made that it is an investment.
- brokensegue 9y agostocks give you ownership in productive companies. those companies on average go up in value and produce profits which they throw off as dividends (or re-invest to increase their market-cap). so one difference then is that stocks have a justification for their returns given the variance you experience.
- darawk 9y agoSo, by your logic, gold is not an investment?
- Nursie 9y agoI would tend to subscribe to a similar view and think that no, gold is not really an investment. A hedge, a gamble perhaps. An investment is something that (hopefully) enables useful work and productive endeavour. Putting money into a company in return for a share of ownership is an investment. A lot of stock market shenanigans are little more than gambling. Gold and crypto-currencies for the most part are speculation.
- darawk 9y agoThat's fair. By your logic then, though, ICO tokens would be an investment?
- Nursie 9y agoThe honest ones, potentially yes. Although it's not always clear with ICOs if any form of ownership is conferred or what the relationship might be between future profits and token gains. But yes, in principle. --edit-- to be clear, I'm not trying to say one class of thing is better than the others, just that to me the words have different meanings.
- brokensegue 9y agosure. just really bad ones. like the DAO.
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- Jach 9y ago"An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative." -Ben Graham, from chapter 1 of The Intelligent Investor
- kgwgk 9y agoIf the stock market is perfectly efficient, standard financial theory says that equity has a positive expected return (relative to the risk free asset).