Tuesday, December 09, 2003

Investing and Gambling

London Froggy recently blogged a great article that you chould check out. Investing and Gambling is written by Don Luskin from Capitalism Magazine.

Here's a bit: "Poker, on the other hand, isn't gambling. If you're a skilled player, poker is investing because you put money at risk with the rational expectation of earning a return. Even if you're an unskilled player, the possibility of becoming skilled through study or experience is always an option for you. If you choose to remain unskilled and play anyway, then you treat poker as gambling -- but that doesn't make the game itself into a gambling game.

Investing and trading are like poker. Even pure guts-driven day trading can be a form of investing. Buying a hot mo-mo stock just because you feel it's going to go up in the next five minutes can be considered investing if you have a good reason to think that your feelings are valid, such as a track record of success for following your feelings. If you find that following your feelings consistently loses you money, then persisting in it isn't investing; that would indeed be gambling for you, even though day trading itself could be a form of investment for someone more skilled at it."


It's a great read and London Froggy has gotten into a serious discussion on his blog about this topic. Check it out.

As a former Wall Street slave I can attest to the similarities between gambling (and poker) and investing. I often refer to playing the stock market as a form of "legalized gambling", but I knew at the end of each trading day, I was nothing more than a bookie in a nice Brooks Brothers suit. Why does our society punish and scoff at bookies and odd makers? That is one of those hypocritical moments that makes me cringe.

But in all honesty, I'm more comfortable taking $10,000 to a poker room in Las Vegas than to blindly invest it into the unstable financial markets.

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