Gambling is a game played for money or property, or a bet on any uncertain outcome. Chance is defined as something that happens unpredictably without human intention or cause. While games have chance – the hand dealt, or how dice land – businesses rely much more on human effort and intention, and investing is about businesses. Though research, like card-counting, is cheating in gambling; investors have a deluge of public data to use. Utilizing this information, or not, may be what separates investing from gambling.

The Fundamentals
There are two ways to analyze stocks – with a fundamental or technical approach. Fundamental investors may match past company performance with their expectations to project what the company is worth. If the current price of the company’s stock is below that value, the investor will buy. If the current stock price is above the estimated value, the investor will sell. Technical analysis typically focuses on past price movements displayed in stock charts to estimate values to buy and sell at.

If the average investor did have the time and ability to analyze stocks, there would always be the chance estimates are wrong. Even with 30 stocks, a portfolio could take a major hit if just one company tanked. That’s why, for many, diversification is a good choice. A broad-market portfolio assumes the overall economy will grow over time and only has market risk, avoiding single-stock risk that comes with less diversification.

Markets V. Casinos...
Perhaps diversifying or estimating values is what separates investing from more speculative activities. If investment decisions do not involve either of those actions, then they may even be described as gambling. Making an investment without a clearly formed idea of what it is actually worth could be called a bet. There’s nothing wrong with having fun at a casino, or treating the stock market like a game; though it might be a good idea to only wager as much as you can afford to lose.

June 16, 2021

Definitions: Merriam-Webster

Markets Demystified is published the first and second Wednesdays of each month,
and is meant to help readers understand how stock market investing relates to household and personal finance.

Thanks for Reading!

Jonathon Oden
Owner | Aesop Advisor LLC

Aesop Advisor LLC newsletters are for informational purposes only. They do not attempt to predict future stock market moves and are not intended as individual investment advice. Aesop newsletters are not recommendations to buy, sell or hold any asset and are not intended as actionable investment advice or market timing. Equities references generally refer to the overall stock market, though if individual companies are mentioned, it is not a recommendation to buy, sell, or hold shares of the company. Unless otherwise indicated, terms including "stocks", the "stock market", and "market(s)" refer to Standard & Poor's 500 index. All investments involve risk and the past performance of a security or financial product does not guarantee future results or returns. While diversification may help spread risk, it does not assure a profit or protect against loss. There is always the potential of losing money when you invest in securities or other financial products. Investors should consider their investment objectives and risks carefully before investing. The price of a given security may increase or decrease based on market conditions and customers may lose money, including their original investment.