Skip to main content

Gambling Versus Investing

Umesh Kurmi is a semi-qualified Chartered Accountant from the Institute of Chartered Accountants of Nepal with seven years of experience.

Business Success

what-are-digital-assets-what-are-the-risk-with-investment-in-digital-assets

Overview

Though gambling and investing have some features in common, they are not alike. Both involve risk and informed decisions. One is required to spend money on both alternatives. One always hopes for future profit in both cases by minimizing the risk factor.

But, gambling is short-lived and there are chances of negative return. So, the risk is higher in the case of gambling as compared to stock market investments. However, the stock market investment may be for the short term, medium-term or, long term depending upon the investment objective of the holder. Contrary to gambling, stock market investments have a positive expected return on an average over the long run.

Now, you have the basic idea to differentiate whether investing in the share market is just like betting or not. Let’s extend the discussion furthermore to what gambling is and what investment in the stock market is?

Gambling Addiction

what-are-digital-assets-what-are-the-risk-with-investment-in-digital-assets

What do you think?

Gambling

As per Cambridge English Dictionary, "gambling means the activity of risking money on the result of something, such as a game or horse race, hoping to make money. It means risking money on an event that has an uncertain outcome and heavily involves contingency. Contingency means a possible obligation that arises from a past event, and whose existence is confirmed by occurrence, or non-occurrence of one, or more future events not wholly within the control of the gambler".

Gamblers put their money in the stake, and when odds are favorable, they win otherwise, they lose. Most professional gamblers are proficient in risk management. They acquire information from the betting pattern of their opponents. They study the manners of the opponents and use the tricks to gain useful information. They also research track records and history while betting in horse racing to make the odds favorable.

It does not matter how efficient and experienced a gambler is. Gambling is always considered as bad for society. Betting can cause personal bankruptcy, offense, domestic mistreatment, and even committing suicide. Gambling creates social issues that outweigh great things, like job creation and tax revenues. In addition, some countries expressly impose bans on gambling or betting.

Lost Money

what-are-digital-assets-what-are-the-risk-with-investment-in-digital-assets

Investing

Investing is always a legal thing in any country. Investing in the stock market means the act of spending money, funds, or capital for procuring a certain number of shares of a company. The investor holds the share or stock for two objectives i.e. generating income/profit or capital appreciation.

Investor in two ways:

  1. In the form of dividend
  2. Gain, when the stock is sold in the short term, medium-term or long term

Stock investment always involves some degree of risk. Risk is directly proportional to return in investing, which means the higher risk stocks have, the higher returns are, and vice-versa. Investors are proficient in risk management strategies to earn profit from the investment. When an investor has a diversified portfolio, the risk is minimized, and adverse changes in the market and economy have minimal effect on such a portfolio.

what-are-digital-assets-what-are-the-risk-with-investment-in-digital-assets

Diversification of risk

In investment, you can diversify your risk in two ways:

  1. Making investments within a particular class of assets according to market capitalization (Eg: Shares/stocks), or
  2. Investing among various classes of assets. These are stocks, debentures, mutual funds, government bonds, treasury bills, real estates, exchange-traded funds (ETF), certificates of deposits, short-term investments, cash, and cash equivalents, etc.

The difference between points # 1& 2 is as follows:

Scroll to Continue

If an investor opts for the diversification strategy mentioned in point # 1, s/he will invest in different types of shares according to market capitalization. Here, s/he sticks to share investment only. Again, if s/he wants to use debentures instead of shares, s/he sticks to debenture investment only, according to market capitalization.

If an investor wants to use the diversification strategy mentioned in Point# 2, s/he can invest proportionately in shares, debentures, bonds, and so on to minimize the risk.

However, the combination of Points # 1 & 2 is the best diversification strategy.

what-are-digital-assets-what-are-the-risk-with-investment-in-digital-assets

Answer the questions

For each question, choose the best answer. The answer key is below.

  1. How can you diversify your investment?
    • Making investment within a particular class of assets within market capitalization
    • Making investment among various class of assets
    • Both 1 & 2
    • Either 1 & 2
  2. What is the best diversification strategy?
    • Making investment within a particular class of assets within market capitalization
    • Making investment among various class of assets
    • Both 1 & 2
    • Either 1 & 2

Answer Key

  1. Either 1 & 2
  2. Both 1 & 2

Other Risk Mitigating Strategies

To enhance their holdings' performance, some investors study trading patterns by interpreting stock charts, using various analytical models to predict future returns and capital appreciations. Investment returns can be affected by the amount of commission an investor must pay a broker to buy or sell stocks on their behalf.

While, gamblers can minimize their risk through their experience, tricks, track records, research history, and the study of mannerisms. Since there is a chance of a negative return in gambling, it is always better to avoid gambling to be on the safer side.

The best risk mitigation strategy for gamblers are:

  • Choose the amount a person can bet for a single time
  • Decide time limit for betting
  • Play just concerning fun, not just for money
  • Understand that knowing more won't ensure a win
  • Avoid playing to getaway
  • Know what's lawful to try out in your area
  • Never bet when stressed, stressed out, or, in recuperation

Please watch this video

Conclusion

When you invest in shares of a company, you own something as shares. Now, you are a shareholder, and the prevailing laws and regulations and corporate governance policies and practices provide rights to the shareholders.

These policies and practices establish key-ownership functions of the shareholders and require the corporate companies to treat all shareholders equally. In addition, shareholders can participate in the profit of the company.

Shareholders have the right to participate and vote in Annual General Meeting. Shareholders have certain rights and obligations when the company is liquidated or wound up. All these are true to some extent in the case of debentures, bonds, and other forms of investments with some changes in rights and participation.

But, whatever amount you spend on gambling, you won't become a partner or shareholder. Neither you get the profit share nor, do you have any right.

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2022 Umesh Kurmi

Related Articles