10 ms·

Investing always is a gamble.

by gnur 13y ago

XorNot 13y ago
Gambling is when the game is purely driven by luck. Investing is when the instrument has measurable properties and explanations for why it will become more valuable - i.e. you invest in making your factory larger, so it can produce product more cheaply. Betting on completely unregulated currency markets (which have good reasons that they shouldn't have any value at all) is gambling, because you're entirely depending on irrationality. That said...quite a few businesses with that model.
- sliverstorm 13y ago
  Investing has a luck component to it as well. The way I like to think of it is, it's gambling when your expected rate of return is negative or zero. It's investing when it is positive. This is why a gambler is gambling, but a casino is investing/running a business.
  - Atroxide 13y ago
    nicely put, never thought of it like that.
  - DennisP 13y ago
    Good point, but an even better definition would take variance and risk of ruin into account. If you just look at expectation, then buying insurance would qualify as a gamble. I think most people would say it's more of a gamble to skip insurance. Betting all your money on one hand of blackjack is a gamble, even if you've been counting cards and know the odds are in your favor. A casino spreading its money over millions of small bets is investing.
    - sliverstorm 13y ago
      That's a good point, and I will have to incorporate it in my example in the future.
  - cookingrobot 13y ago
    Gambling and market speculation (and even theft) are related in that they're all 0 sum games. Every dollar you make is a dollar someone else wishes they hadn't lost. Investing is different in that when you win and earn a return, nobody feels that they lost.
    - joosters 13y ago
      How about all those people who sell shares and then see them shoot up in value? They certainly feel that they lost.
    - dragontamer 13y ago
      Indeed. The best example would be bonds. If you buy the California Bonds... the people of California may get a High-Speed Railroad within a year. They will not be able to accomplish the building of the High Speed Railroad without investor support. 30 years from now, the state of California will finish paying off your bonds. And you'll make some money. Win/Win for everyone. Investors make money, and California citizens get High Speed Railroads today... instead of 30 years from now.
  - joosters 13y ago
    What is your expected rate of return from a horse racing bet? It's certainly negative if you pick a horse at random, but what if you chose the horse based upon form, conditions, odds and so on? It's still gambling, but you cannot prove that the expected rate of return will be negative in this case. There are people who make a living from this, just like there are people making a living from investments. Likewise, there are lots of people that lose at both.
- socillion 13y ago
  Some of these altcoins are the epitome of the greater fool theory, where most participants are perfectly aware that it is a rationally poor decision to invest in them but do it anyway because they think someone will buy it for more later. It turns out people can make huge returns even from investing in known scams - certainly not guaranteed, but it's better odds than gambling.
  - XorNot 13y ago
    Really? Only "altcoins"? They have the exact same mechanics, structure, and backing as Bitcoin...
    - socillion 13y ago
      I only intended to comment on the altcoins that are known scams, but draw investors anyway. Imagine you started XorNotBux, announced you were planning to sell a billion of them in a few months, then inflated the price with a much smaller supply in circulation. Some people will buy this (and possibly profit) fully knowing that you plan to obliterate it in the near future.
    - deleted 13y ago
      [deleted]
    - SectioAurea 13y ago
      False. They do not all have the same structure as Bitcoin. Many of them are explicitly structured as pyramid schemes (premining, instamining, stealth launches, closed source launches). While very few have unique selling points over Bitcoin, it is dangerous to assume they are 'at least as useful' as Bitcoin.
      - XorNot 13y ago
        Bitcoin was extensively pre-mined.
- joosters 13y ago
  Not at all. Is betting on a football match purely luck? Of course not, there's the skill of the teams and luck involved. Investing == gambling. You can buy shares. Or you can make a bet with a spread-betting financial company that pays out in the same way that the shares do. We call one investing and other gambling, but there is no difference.
  - jbellis 13y ago
    The crucial distinction is that buying shares is not a zero sum game; it's possible for all investors to "win." This is not the case in gambling or commodities markets; for me to win, someone else has to lose.
    - joosters 13y ago
      Why is that different from share deals? There's a buyer and a seller... if one of them wins, the other by definition must lose. Call whatever you do 'investing' if it makes you happy, but as I said before, you can replicate financial 'investments' with spread-betting 'bets' and you will make the same gains and losses.
      - im3w1l 13y ago
        >if one of them wins, the other by definition must lose. No. If you sell shares to pay for living expenses you do not lose. If you dilute your shares to raise capital to make your remaining shares worth more you do not lose.
        golden_apples 13y ago
        The analog to that goes something like: all participants in a hand of blackjack can win. And even the house doesn't ”lose”: it makes an expected payout, which incentivizes the players to continue in the game, which over time will enrich the casino more.
      - dragontamer 13y ago
        The #1 trade you make in investing is trading "money today" for "money tomorrow". The specifics of how to trade "today's money" for "tomorrow's money" differ in the forms of bonds, stocks, or options... but its all the same. Someone wants money today, and is willing to give up more money tomorrow for that money today. If it weren't for big stock IPOs, Angel Investors and Venture Capitalists wouldn't invest into startups. Not everyone is looking to hold stock for 20 or 30 years... especially Angel Investors who are addicted to helping out small startups. Buying stock from an Angel Investor who is IPOing allows the Angel Investor to invest into another small company, and transfers the ownership of a (used to be) startup, to your control. IE: Facebook and Twitter. Angel Investors would rather own a smaller, more volatile company... while the typical investor would rather own the bigger, more stable companies for their retirement. Its not necessarily about "winning" and "losing". If an early Facebook investor liquidates his $$$ in Facebook, it allows him to help out another company. He doesn't care how Facebook does in the future, because he's far more interested in helping startups. Again, its win/win for everyone. Everyone benefits when the Venture Capitalists sell off their stocks to the Stock Market.
- deleted 13y ago
  [deleted]
- andrewflnr 13y ago
  So, poker isn't gambling? That's news to most of the world. It seems pretty clear to me that gambling and investing are a continuum, with craps at one end and Treasury bonds at the other.
  - BrandonM 13y ago
    Poker absolutely isn't gambling for skilled individuals, any more than a casino is gambling by offering games of chance that have a house advantage.
choult 13y ago
Yet gambling is rarely an investment...
sliverstorm 13y ago
The distinction is fuzzy, but the difference is not imaginary.
deleted 13y ago
[deleted]
stevenj 13y ago
Two definitions of investing by notable people: 1. From The Intelligent Investor by Benjamin Graham: "An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative." http://www.amazon.com/Intelligent-Investor-Definitive-Investing-Practical/dp/0060555661 http://www.amazon.com/Intelligent-Investor-Definitive-Invest... 2. From Mr. Buffett on the Stock Market: "The definition is simple but often forgotten: investing is laying out money now to get more money back in the future -- more money in real terms, after taking inflation into account." http://money.cnn.com/magazines/fortune/fortune_archive/1999/11/22/269071 http://money.cnn.com/magazines/fortune/fortune_archive/1999/...
shin_lao 13y ago
There's always a gamble percentage in a gamble, but you don't invest like you gamble. Or well, you can, but it won't get you very far. ;)

Investing always is a gamble.

by gnur 13y ago

Investing always is a gamble.

Gambling is when the game is purely driven by luck. Investing is when the instrument has measurable properties and explanations for why it will become more valuable - i.e. you invest in making your factory larger, so it can produce product more cheaply. Betting on completely unregulated currency markets (which have good reasons that they shouldn't have any value at all) is gambling, because you're entirely depending on irrationality. That said...quite a few businesses with that model.

sliverstorm 13y ago
Investing has a luck component to it as well. The way I like to think of it is, it's gambling when your expected rate of return is negative or zero. It's investing when it is positive. This is why a gambler is gambling, but a casino is investing/running a business.
- Atroxide 13y ago
  nicely put, never thought of it like that.
- DennisP 13y ago
  Good point, but an even better definition would take variance and risk of ruin into account. If you just look at expectation, then buying insurance would qualify as a gamble. I think most people would say it's more of a gamble to skip insurance. Betting all your money on one hand of blackjack is a gamble, even if you've been counting cards and know the odds are in your favor. A casino spreading its money over millions of small bets is investing.
  - sliverstorm 13y ago
    That's a good point, and I will have to incorporate it in my example in the future.
- cookingrobot 13y ago
  Gambling and market speculation (and even theft) are related in that they're all 0 sum games. Every dollar you make is a dollar someone else wishes they hadn't lost. Investing is different in that when you win and earn a return, nobody feels that they lost.
  - joosters 13y ago
    How about all those people who sell shares and then see them shoot up in value? They certainly feel that they lost.
  - dragontamer 13y ago
    Indeed. The best example would be bonds. If you buy the California Bonds... the people of California may get a High-Speed Railroad within a year. They will not be able to accomplish the building of the High Speed Railroad without investor support. 30 years from now, the state of California will finish paying off your bonds. And you'll make some money. Win/Win for everyone. Investors make money, and California citizens get High Speed Railroads today... instead of 30 years from now.
- joosters 13y ago
  What is your expected rate of return from a horse racing bet? It's certainly negative if you pick a horse at random, but what if you chose the horse based upon form, conditions, odds and so on? It's still gambling, but you cannot prove that the expected rate of return will be negative in this case. There are people who make a living from this, just like there are people making a living from investments. Likewise, there are lots of people that lose at both.
socillion 13y ago
Some of these altcoins are the epitome of the greater fool theory, where most participants are perfectly aware that it is a rationally poor decision to invest in them but do it anyway because they think someone will buy it for more later. It turns out people can make huge returns even from investing in known scams - certainly not guaranteed, but it's better odds than gambling.
- XorNot 13y ago
  Really? Only "altcoins"? They have the exact same mechanics, structure, and backing as Bitcoin...
  - socillion 13y ago
    I only intended to comment on the altcoins that are known scams, but draw investors anyway. Imagine you started XorNotBux, announced you were planning to sell a billion of them in a few months, then inflated the price with a much smaller supply in circulation. Some people will buy this (and possibly profit) fully knowing that you plan to obliterate it in the near future.
  - deleted 13y ago
    [deleted]
  - SectioAurea 13y ago
    False. They do not all have the same structure as Bitcoin. Many of them are explicitly structured as pyramid schemes (premining, instamining, stealth launches, closed source launches). While very few have unique selling points over Bitcoin, it is dangerous to assume they are 'at least as useful' as Bitcoin.
    - XorNot 13y ago
      Bitcoin was extensively pre-mined.
joosters 13y ago
Not at all. Is betting on a football match purely luck? Of course not, there's the skill of the teams and luck involved. Investing == gambling. You can buy shares. Or you can make a bet with a spread-betting financial company that pays out in the same way that the shares do. We call one investing and other gambling, but there is no difference.
- jbellis 13y ago
  The crucial distinction is that buying shares is not a zero sum game; it's possible for all investors to "win." This is not the case in gambling or commodities markets; for me to win, someone else has to lose.
  - joosters 13y ago
    Why is that different from share deals? There's a buyer and a seller... if one of them wins, the other by definition must lose. Call whatever you do 'investing' if it makes you happy, but as I said before, you can replicate financial 'investments' with spread-betting 'bets' and you will make the same gains and losses.
    - im3w1l 13y ago
      >if one of them wins, the other by definition must lose. No. If you sell shares to pay for living expenses you do not lose. If you dilute your shares to raise capital to make your remaining shares worth more you do not lose.
      - golden_apples 13y ago
        The analog to that goes something like: all participants in a hand of blackjack can win. And even the house doesn't ”lose”: it makes an expected payout, which incentivizes the players to continue in the game, which over time will enrich the casino more.
    - dragontamer 13y ago
      The #1 trade you make in investing is trading "money today" for "money tomorrow". The specifics of how to trade "today's money" for "tomorrow's money" differ in the forms of bonds, stocks, or options... but its all the same. Someone wants money today, and is willing to give up more money tomorrow for that money today. If it weren't for big stock IPOs, Angel Investors and Venture Capitalists wouldn't invest into startups. Not everyone is looking to hold stock for 20 or 30 years... especially Angel Investors who are addicted to helping out small startups. Buying stock from an Angel Investor who is IPOing allows the Angel Investor to invest into another small company, and transfers the ownership of a (used to be) startup, to your control. IE: Facebook and Twitter. Angel Investors would rather own a smaller, more volatile company... while the typical investor would rather own the bigger, more stable companies for their retirement. Its not necessarily about "winning" and "losing". If an early Facebook investor liquidates his $$$ in Facebook, it allows him to help out another company. He doesn't care how Facebook does in the future, because he's far more interested in helping startups. Again, its win/win for everyone. Everyone benefits when the Venture Capitalists sell off their stocks to the Stock Market.
deleted 13y ago
[deleted]
andrewflnr 13y ago
So, poker isn't gambling? That's news to most of the world. It seems pretty clear to me that gambling and investing are a continuum, with craps at one end and Treasury bonds at the other.
- BrandonM 13y ago
  Poker absolutely isn't gambling for skilled individuals, any more than a casino is gambling by offering games of chance that have a house advantage.

choult 13y ago

Yet gambling is rarely an investment...

sliverstorm 13y ago

The distinction is fuzzy, but the difference is not imaginary.

deleted 13y ago

[deleted]

stevenj 13y ago

Two definitions of investing by notable people: 1. From The Intelligent Investor by Benjamin Graham: "An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative." http://www.amazon.com/Intelligent-Investor-Definitive-Investing-Practical/dp/0060555661 http://www.amazon.com/Intelligent-Investor-Definitive-Invest... 2. From Mr. Buffett on the Stock Market: "The definition is simple but often forgotten: investing is laying out money now to get more money back in the future -- more money in real terms, after taking inflation into account." http://money.cnn.com/magazines/fortune/fortune_archive/1999/11/22/269071 http://money.cnn.com/magazines/fortune/fortune_archive/1999/...

shin_lao 13y ago

There's always a gamble percentage in a gamble, but you don't invest like you gamble. Or well, you can, but it won't get you very far. ;)