Are You Investing or Gambling?

To manage our investments well, first we need to develop the proper attitude and behaviour, and avoid treating investing as speculative activities or gambling.

Since investing and gambling are different, it is important for investors to distinguish the two and avoid confusion.

Depending on the investment objective, investing can be short-term or long-term. In general, long-term investors buy and hold assets such as securities, gold, and real estate, with the expectation of value appreciation and returns over time. Long-term investments may last over a decade. Meanwhile, investing involves meticulous calculation, such as expected returns and risks. Risk management is a key part of investing, and asset allocation is a common practice.

On the contrary, most gambling activities bet on unknown outcomes. When the result is revealed, the game is over. In whatever format, the betting process is relatively short-lived; as such, gambling is short-term in nature. While gamblers may win or lose, most would only focus on the chance of winning and not that of losing. It is also typical for gamblers to go all-in. For them, risk management appears to be a foreign concept.

Gambling can come in various forms and you can basically bet on anything. Some investment attitudes and behaviours may be similar to gambling and come with very high risks.

• Short-term speculation: Day trading means buying and selling stocks on the same day to profit from short-term price movements. Day traders usually trade on highly volatile stocks, such as penny stocks or those driven by news or rumours. Some of them even try to amplify the gain by margin trading. This type of speculative behaviour resembles betting against the house at a casino – the bettor will suffer significant losses if betting on the wrong side.
• Going all-in: No one can predict the future or best time to enter the market. However, some investors believe that they can forecast the future and would go all-in with their investment. However, investing is a long-term practice, and the gambling mentality of going all-in cannot be sustained and might end in losing everything.
• Buying into hype: Getting something for nothing is a typical gambling mentality. Investors need to do their research and analysis to determine whether the investment meets their investment objectives and risk tolerance. The risk of buying into hype is quite high. Not only is there a chance of buying into bad investment advice, but there is also the risk of falling victim to investment scams like “ramp and dump”, which can lead to significant losses.

Gambling is exciting because it is a win-or-lose situation. However in the long run, gamblers usually end up losing more than winning . Furthermore, investment is part of one’s financial planning that needs to take personal financial goals and risk tolerance into consideration. Investing should never be treated as gambling. Good investment habits are the key to successful investment.