Casinos and horse races aren’t the only places where people can gamble. In truth, the vast majority of investors either speculate or gamble on equities. However, gambling in stocks has comparable consequences to gambling in casinos, where the odds are always in favor of the house in the long run. When it comes to stock investment, keep in mind that your profits should be proportional to the risks you’re taking. You are not investing, but rather speculating or gambling, if the risks are too high in comparison to the safety and returns. A quick note: gambling and speculating are not the same thing. Gambling is speculating carried to its logical conclusion.
Too many people have the misconception that they are investing in stocks when they are actually speculating or gambling. People trying to make short profits from minute market changes by perfectly timing the market are a common form of stock gambling. It’s quite impossible for the average investor to timing the market exactly and consistently unless they’ve been taught to do so (like technical analysts).
5 Warning Signs You’re Betting on Stocks
1. Taking advantage of free advice/recommendations:
If you’re serious about making money by investing in stocks, either put in the work to grasp the basics or hire a registered/certified investment advisor. Investing based on hot tips or recommendations from a television channel or a coworker is a surefire way to lose money.
The majority of people who consistently make money from stocks are either do-it-yourself (DIY) investors or those who are wise enough to hire a certified investment advisor. Yes, you will be charged a fee by the advisors. Consider it instead as the advantage of measured risk over uncalculated risk.
2. Making large bets on market blips in the near term.
Investing large sums of money on the latest breaking news that you just read on a news website does not fall under the category of investing. The future return on stocks is determined by a number of factors that should be thoroughly investigated rather than investing based on a single piece of news such as a 40% increase in a company’s quarterly earnings per share or the debut of a new hyped product. Rather than investing based on short-term market gyrations, serious investors should conduct extensive qualitative and quantitative research.
Always remember Benjamin Graham’s famous quote: “A market is a voting machine in the short run, but a weighing machine in the long run.” It simply means that short-term market psychology is difficult to anticipate because sentiments drive it (similar to voting machines). Long-term outcomes, on the other hand, may be quantified if studies are conducted properly (like a weighing machine). Instead than focusing on short-term turmoil, consider the stock’s long-term performance.
3. Investing everything in a single stock
The worst type of stock gambling is putting all of your money into a single stock. Perhaps it appears to be a fantastic opportunity right now. However, there could be millions of reasons why the stock does not perform well. And if the stock doesn’t perform as expected, for whatever reason, you’ll lose all of your hard-earned cash.
Putting everything in one stock increases the danger. Diversifying one’s portfolio is a good strategy for wise investors. “Do not put all your eggs in one basket,” as the old saying goes.
4. Investing in short-term transactions with your emergency fund
An investor should be aware of the risks and benefits. Using your emergency money to make short-term trades is a clear indication that you’re gambling. After all, no matter how secure the deal is, the outcomes are unpredictable. If something goes wrong and you’ve already depleted your emergency cash, you won’t have any other options. As a general guideline, invest any money that is extra.
5. Investing based on the purchases of large investors
It’s difficult to decipher the exact plan of the market’s major players, no matter how closely you follow their investments. Furthermore, a small investor lacks the resources that large investors have. Investing mindlessly in what the major players are buying is unquestionably a form of stock gambling.