Home » General » The Stock Market Is Not a Casino

In my personal life I’ve witnessed a large number of people who frequent casinos and waste money on copious amounts of lottery tickets. Many of these same people have told me that investing in the stock market is too risky for them. I believe it’s time to shine some light on the situation and demonstrate how the stock market is not only unlike a casino, but also a heck of a lot safer.

For three chief reasons, the stock market beats any sort of gambling hands down:

  • Risk Profile
  • Lifestyle
  • Peace of Mind

Risk Profile

Have you ever heard that the stock market is “risky”? Of course you have. Everyone has. That’s the going line when people talk about the markets.

Have you ever dug down and really asked what someone means when they talk about risk? Most people will relate to something such as, “Well, you could lose all of your money!”

While it’s true that you could lose all of your money in the stock market, the reality is that you are losing money right now. Even while we speak, the value of every dollar you own is being eroded by the hidden tax of inflation. In the same way that a bottle of Coca-Cola (KO) at one time sold for $0.05 and would now cost around $1.50, the goods and services you purchase today are likely to cost more in real and nominal terms in the future.

While people are quick to point out that the value of a stock could go to zero in the future, they fail to factor in the equally real danger that by hording money in a savings account they are taking a loss in the present.

Further, relative to actual forms of gambling, with the stock market you are investing in real businesses. Dumping money onto the roulette wheel and praying for a fortuitous bounce is absolutely nothing like making a bet for the long term on proven businesses.

Having studied market data covering hundreds of years, I can tell you that the markets have delivered at least +6% compounded annually in real returns. Given that casinos and lotteries have also existed for many years, it’s safe to say gamblers on the whole have not enjoyed similar returns; gamblers tend to lose.

There’s a reason the richest people in the world invest in the stock market and you don’t see many billionaires whose main source of income has been as a gambler (though casino owners tend to do quite well).

Lifestyle

Earning greater levels of income whether through investing or gambling only has as much value as the future state it can provide you. As such, you should think about what sort of lifestyle you are aiming for.

I don’t know many gamblers who have parlayed their daily grind at the poker table into a passive income stream that pays them even while they’re not working. The typical casino-frequenter spends several days a week trying to “make a buck” by outsmarting the games and those they gamble against, all while the casino relentlessly takes their rake on every play.

On the other hand, the intelligent stock market investor is able to turn their decisions into lifelong income streams. By purchasing shares in quality businesses that pay rising dividends, an investor can literally make investments that will send them quarterly payments like clockwork for the rest of their lives!

It’s not difficult to see who is likely to have the superior quality of life over the long term; the gambler sweating it out regularly and trying to beat a game with the odds stacked against her versus the long term investor who is able to spend time with family and friends without worrying about how she’s going to pay her bills due to her rock-solid portfolio.

Peace of Mind

Have you ever seen the movie Casino with De Niro and Pesci? Think of the scene where Ace (played by De Niro) is described as knowing even what’s going on with the girlfriends of the athletes, the way the wind is blowing in the football stadium, and how the wood bounces on the basketball court. He uses all of these minute details to make decisions as to how the corresponding sporting event will go. Imagine the level of involvement that takes on the part of the talented gambler. It would be more than an all-time job. It would be an all-consuming pursuit.

Now picture the stock market investor who has their money tucked away in shares of the best businesses in the world. With regular dividend payments rolling in on schedule every month, this investor never misses a bill payment and can watch those same sporting events as the gambler without needing to bite nails or carry out rituals to in hopes of favourable outcomes. In fact, the investor holds shares of the companies that sponsor the athletes including the sports drinks that the players use to hydrate, the shoe companies that keep them moving, and the telecom companies that broadcast the game across the nation. The investor, after having done up-front research to select the right companies to trust with their money, is able to keep their portfolio healthy with minimal interaction. It has been shown that investors who spend less time analyzing their portfolios do the best.

Who do you think has more peace of mind?

Conclusion

If someone tells you that investing in the stock market is gambling, they probably haven’t done their research. The stock market is absolutely one of the most accessible and useful roads to wealth ever known to mankind. Whether through the use of individual dividend paying companies or purchasing index funds/ETFs, the path to Get Rich should involve the stock market.

Thanks for reading and remember to invest for the long term.

Ryan

What do you think? Is the stock market the road to wealth or is it a gambler’s paradise? Is it either or both, depending on one’s intentions?

Full Disclosure: Long KO

Pictures courtesy of pixabay.com 

6 thoughts on “The Stock Market Is Not a Casino

  1. I think it can be a bit of both; just depends on how you approach it. I think we as DGIs are generally good with analyzing and studying individual companies, and making rational decisions about those. Definitely takes a lot of the risk out of the equation. But for others, it probably is like gambling. Just chucking your money at FB or TSLA because the price is going up is is basically just picking a number on the dartboard and hoping for the best. You may hit it, you may not.

    1. GetRichInCanada says:

      Thanks for stopping by, DD.

      You make a good point. Many people DO use the stock market like a casino as they try to weave in and out of the market turbulence. FB and TSLA are good examples of stocks that people tend to trade rather than invest. There’s a watercooler conversation aspect to tech companies that you just don’t get with dividend stalwarts.

      When I describe the DGI strategy with most people, there’s not a whole lot that excites them after I mention a few multi-decade dividend growth records. With FB, TSLA, and now BABA, there’s excitement about “where it’s going next”. It’s like trying to guess which number the roulette ball will stop on.

  2. Andrew says:

    Another great article. Can’t get enough of these. Keep up the great work guys!

    1. GetRichInCanada says:

      Thanks Andrew! We appreciate you stopping by to read and comment.

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