'The difference between investing and gambling or speculating is taking calculated versus uncalculated risks,' says Greg Woodard, managing director of portfolio strategies at Manning & Napier, an. Another key differentiator between investing and gambling has to do with time. With gambling, your chance to profit ends as soon as the game is over, while with investing there's the opportunity of a future income stream in terms of dividends and interest, and there's the alluring prospect of capital growth and compounding returns over time.
- Difference Between Gambling And Stock Trading Halted
- Difference Between Gambling And Stock Trading Platforms
- Difference Between Stock Trading And Gambling In A Casino
- Difference Between Gambling And Stock Trading Broker
Difference Between Gambling And Stock Trading Halted
Today we are going to talk about a topic many traders will deny and it's important for you to keep on reading, especially if you feel offended or think that this article isn't about you. This article has the goal to raise awareness of negative behavioral and thought patterns. The concepts highlighted can help you identify patterns that might be holding you back from achieving success in trading.
Many people who call themselves 'traders' are operating in a gambling mindset. In the following article we condensed research findings of what defines a gambler and what it means to act in a gambling mindset.
The 4 types of gamblers
Psychology and psychological research distinguish between 4 different types of gamblers:
1) Social gambling occurs when you occasionally meet friends for a limited amount of time. Often, the gambling aspect is not as important as the social component and the bet sizes are limited.
2) In professional gambling, the gamblers limit their bets and discipline plays a very important role.
Know your limits and play within your budget. Not setting a gambling budget is perhaps one of the. To learn how to beat slot machines, you need to first know how they work. Slots are amongst the most popular casino games throughout the world, both in land-based and online casinos. Casino slot machines tips to win.
3) Problem gambling is characterized by pre-occupation (the activity takes up a lot of time), other interests become unimportant, people continue to gamble despite negative experiences, accompanied by a variety of other factors as we will see shortly.
4) Pathological gamblers deny their circumstances, they are over-confident and believe that they are in control; they believe that money will solve all their problems; they are very competitive, restless and get bored easily. Pathological gamblers are often workaholics or binge workers.
The definitions have been borrowed from Psychcentral.com. In the following article, we will focus on the problem and pathological gamblers and highlight the difference between social and professional gambling.
Gambling refers to engaging in an activity where the outcome is uncertain and where the protagonist is betting money on specific outcomes.
The problem-gambler checklist
- Gamblers get excited by risking (substantial amounts of) money. Money is not as important anymore, but they are after the excitement and the thrill.1
- Gamblers steadily increase the amount they are willing to risk. 1
- Gambling and the gambling activity take up a lot of time and become an important role in the life of a gambler (gambling instead of spending time with family, friends and hobbies). 1
- Casual-gamblers often set a loss limit that signals to stop playing. Problem-gamblers do not stop when they lose money, but they try to recover their losses. 1
- Problem-gamblers increase the bet size to recover from losses faster. A behavior called 'chasing'. 2
- Bragging about wins, but not talking about losses. 2
- Experience mood swings – problem-gamblers feel good when winning and down when losing. 2
- Lying or secretive behavior to cover up their gambling and the amount of their gambling. 2
- Gambling with money they can't afford to lose. 3
- People have problems focusing on anything else, but gambling. 3
- Denying that they are problem or pathologic-gamblers. 3
It becomes obvious very fast why problem-gamblers should stay away from taking risks or work on their mental game – preferably by consulting professional help. If you find yourself among the descriptions above, we urge you to take a break from trading and re-think what you are doing.
Traits of a professional gambler/trader/ risk-taker
There are a few character traits and mindset-qualities that stand out for the professional gambler 3:
- The act of gambling and when to bet money is planned and based on methodical principles
- A high level of discipline and the absence of impulsive decision-making
- Does not chase losses
- Professional gamblers can evolve into problem or pathological gamblers
Further reading: In an earlier article we talked about the broker and other related research findings which observed the trading behavior of different segments of traders. The researchers identified the traders who are most likely to lose all their money and also uncovered some of the reasons behind acting within a gambling mindset.
The big game poker winners. References
1) http://www.mayoclinic.org/diseases-conditions/compulsive-gambling/basics/symptoms/con-20023242
2) http://psychcentral.com/lib/symptoms-of-compulsive-gambling/
3) http://www.stopgamblingnow.com/general_information/types_of_gamblers
Podcast: Play in new window | Download
LISTEN (mp3audio) (5:45 min)
Right before the 2010 Super Bowl, a page 1 article in the February 5, 2010 Wall Street Journal opened with this sentence:
'Investors are sometimes accused of treating the stock market like a casino. Now, one Wall Street firm wants to treat casinos like the stock market.'
The article details the decision of a Wall Street bond-trading company to take over the management of sports betting at a new Las Vegas casino. Lee Amaitis, the company executive who runs the betting operation, says the firm got into sports gambling because 'we wanted to turn gamblers into traders.' Using sophisticated financial-markets software, bettors can not only bet on the final outcome, but also make wagers on events during the game, such as whether the next pass might be completed, or who kicks next field goal.
On several occasions, the article noted similarities between investing and gambling. The article even featured a bond trader-turned-professional gambler who said 'Wall Street is just a form of legalized gambling.'
Is investing just a form of gambling? For many investors, the answer may be 'yes.' But it doesn't have to be. And it probably shouldn't be.
In July 2000, Tom Murkco, the CEO of Investor-Guide.com, published an essay titled 'What is the difference between gambling and investing?' While Murkco noted that many aspects of gambling and investing might appear similar, there were several distinct and easily defined differences.
For either investing or gambling, the beginning of Murkco's definition is the same: An activity in which money is put at risk for the purpose of making a profit.
But while the purpose of gambling and investing is identical, the methods by which the purposes are achieved are drastically different.
Here are Murkco's distinctions:
When someone invests…
- sufficient research has been conducted;
- the odds are favorable;
- the behavior is risk-averse;
- a systematic approach is being taken;
- emotions such as greed and fear play no role;
- the activity is ongoing and done as part of a
- long-term plan;
- the activity is not motivated solely by entertainment or compulsion;
- ownership of something tangible is involved;
- a net positive economic effect results.'
When someone gambles…
- little or no research has been conducted;
- the odds are unfavorable;
- the behavior is risk-seeking;
- an unsystematic approach is being taken;
- emotions such as greed and fear play a role;
- the activity is a discrete event or series of discrete events not done as part of a long-term plan;
- the activity is significantly motivated by entertainment or compulsion;
- ownership of something tangible is not involved;
- no net economic effect results.
Difference Between Gambling And Stock Trading Platforms
When defined this way, it's easy to see the differences between investing and gambling. It's also easy to see that because of the methods some people use to invest, their behavior may more closely resemble gambling.
For example, industry studies have repeatedly shown that the behavior of mutual fund investors often accounts for poor investment performance. Because they don't approach investing systematically, emotions like greed and fear may cause people to make impulsive decisions, with little or no research. Not surprisingly, the results from these methods more often resemble the returns from lottery tickets.
Difference Between Stock Trading And Gambling In A Casino
Not Gambling with Your Investments: Easier said than done?
In his book, Snap Judgment: When to Trust Your Instincts, When to Ignore Them, and How to Avoid Making Big Mistakes With Your Money,author David Adler says it's the psychological component of investing that is the most difficult to manage. Adler contends that behavioral research shows many individuals have an almost over-whelming set of hard-wired dispositions to take gambles rather than make investments. Adler quotes Andrew Lo, an MIT professor of finance:
Difference Between Gambling And Stock Trading Broker
'The same neural circuitry that responds to cocaine, food, and sex has been shown to be activated by monetary gain as well.'
For some people, the thrill of investing/gambling can be addictive. But when the stakes are one's financial future or retirement, or your children's college education, the need for a thrill shouldn't come by jeopardizing one's investments.
This imperative to not compromise investing by gambling highlights one of the greatest benefits of working with a team of financial professionals: Besides receiving informed advice, a financial professional can often serve as a protection against gambling with your investments, by encouraging you to make sound decisions based on good research that have a high likelihood of success.
Online Blackjack Basics The objective in Blackjack is simple: beat the dealer's hand without exceeding 21 points. At the start of the game, players are dealt two cards faceup, while the dealer receives one faceup card and another facedown.
4) Pathological gamblers deny their circumstances, they are over-confident and believe that they are in control; they believe that money will solve all their problems; they are very competitive, restless and get bored easily. Pathological gamblers are often workaholics or binge workers.
The definitions have been borrowed from Psychcentral.com. In the following article, we will focus on the problem and pathological gamblers and highlight the difference between social and professional gambling.
Gambling refers to engaging in an activity where the outcome is uncertain and where the protagonist is betting money on specific outcomes.
The problem-gambler checklist
- Gamblers get excited by risking (substantial amounts of) money. Money is not as important anymore, but they are after the excitement and the thrill.1
- Gamblers steadily increase the amount they are willing to risk. 1
- Gambling and the gambling activity take up a lot of time and become an important role in the life of a gambler (gambling instead of spending time with family, friends and hobbies). 1
- Casual-gamblers often set a loss limit that signals to stop playing. Problem-gamblers do not stop when they lose money, but they try to recover their losses. 1
- Problem-gamblers increase the bet size to recover from losses faster. A behavior called 'chasing'. 2
- Bragging about wins, but not talking about losses. 2
- Experience mood swings – problem-gamblers feel good when winning and down when losing. 2
- Lying or secretive behavior to cover up their gambling and the amount of their gambling. 2
- Gambling with money they can't afford to lose. 3
- People have problems focusing on anything else, but gambling. 3
- Denying that they are problem or pathologic-gamblers. 3
It becomes obvious very fast why problem-gamblers should stay away from taking risks or work on their mental game – preferably by consulting professional help. If you find yourself among the descriptions above, we urge you to take a break from trading and re-think what you are doing.
Traits of a professional gambler/trader/ risk-taker
There are a few character traits and mindset-qualities that stand out for the professional gambler 3:
- The act of gambling and when to bet money is planned and based on methodical principles
- A high level of discipline and the absence of impulsive decision-making
- Does not chase losses
- Professional gamblers can evolve into problem or pathological gamblers
Further reading: In an earlier article we talked about the broker and other related research findings which observed the trading behavior of different segments of traders. The researchers identified the traders who are most likely to lose all their money and also uncovered some of the reasons behind acting within a gambling mindset.
The big game poker winners. References
1) http://www.mayoclinic.org/diseases-conditions/compulsive-gambling/basics/symptoms/con-20023242
2) http://psychcentral.com/lib/symptoms-of-compulsive-gambling/
3) http://www.stopgamblingnow.com/general_information/types_of_gamblers
Podcast: Play in new window | Download
LISTEN (mp3audio) (5:45 min)
Right before the 2010 Super Bowl, a page 1 article in the February 5, 2010 Wall Street Journal opened with this sentence:
'Investors are sometimes accused of treating the stock market like a casino. Now, one Wall Street firm wants to treat casinos like the stock market.'
The article details the decision of a Wall Street bond-trading company to take over the management of sports betting at a new Las Vegas casino. Lee Amaitis, the company executive who runs the betting operation, says the firm got into sports gambling because 'we wanted to turn gamblers into traders.' Using sophisticated financial-markets software, bettors can not only bet on the final outcome, but also make wagers on events during the game, such as whether the next pass might be completed, or who kicks next field goal.
On several occasions, the article noted similarities between investing and gambling. The article even featured a bond trader-turned-professional gambler who said 'Wall Street is just a form of legalized gambling.'
Is investing just a form of gambling? For many investors, the answer may be 'yes.' But it doesn't have to be. And it probably shouldn't be.
In July 2000, Tom Murkco, the CEO of Investor-Guide.com, published an essay titled 'What is the difference between gambling and investing?' While Murkco noted that many aspects of gambling and investing might appear similar, there were several distinct and easily defined differences.
For either investing or gambling, the beginning of Murkco's definition is the same: An activity in which money is put at risk for the purpose of making a profit.
But while the purpose of gambling and investing is identical, the methods by which the purposes are achieved are drastically different.
Here are Murkco's distinctions:
When someone invests…
- sufficient research has been conducted;
- the odds are favorable;
- the behavior is risk-averse;
- a systematic approach is being taken;
- emotions such as greed and fear play no role;
- the activity is ongoing and done as part of a
- long-term plan;
- the activity is not motivated solely by entertainment or compulsion;
- ownership of something tangible is involved;
- a net positive economic effect results.'
When someone gambles…
- little or no research has been conducted;
- the odds are unfavorable;
- the behavior is risk-seeking;
- an unsystematic approach is being taken;
- emotions such as greed and fear play a role;
- the activity is a discrete event or series of discrete events not done as part of a long-term plan;
- the activity is significantly motivated by entertainment or compulsion;
- ownership of something tangible is not involved;
- no net economic effect results.
Difference Between Gambling And Stock Trading Platforms
When defined this way, it's easy to see the differences between investing and gambling. It's also easy to see that because of the methods some people use to invest, their behavior may more closely resemble gambling.
For example, industry studies have repeatedly shown that the behavior of mutual fund investors often accounts for poor investment performance. Because they don't approach investing systematically, emotions like greed and fear may cause people to make impulsive decisions, with little or no research. Not surprisingly, the results from these methods more often resemble the returns from lottery tickets.
Difference Between Stock Trading And Gambling In A Casino
Not Gambling with Your Investments: Easier said than done?
In his book, Snap Judgment: When to Trust Your Instincts, When to Ignore Them, and How to Avoid Making Big Mistakes With Your Money,author David Adler says it's the psychological component of investing that is the most difficult to manage. Adler contends that behavioral research shows many individuals have an almost over-whelming set of hard-wired dispositions to take gambles rather than make investments. Adler quotes Andrew Lo, an MIT professor of finance:
Difference Between Gambling And Stock Trading Broker
'The same neural circuitry that responds to cocaine, food, and sex has been shown to be activated by monetary gain as well.'
For some people, the thrill of investing/gambling can be addictive. But when the stakes are one's financial future or retirement, or your children's college education, the need for a thrill shouldn't come by jeopardizing one's investments.
This imperative to not compromise investing by gambling highlights one of the greatest benefits of working with a team of financial professionals: Besides receiving informed advice, a financial professional can often serve as a protection against gambling with your investments, by encouraging you to make sound decisions based on good research that have a high likelihood of success.
Online Blackjack Basics The objective in Blackjack is simple: beat the dealer's hand without exceeding 21 points. At the start of the game, players are dealt two cards faceup, while the dealer receives one faceup card and another facedown. Click chips from your bank to move them onto the table and make your bet. Click chips on the table to take them back. Click Deal, and the dealer will toss you two cards. Options to Hit, Stand.
Take a moment to consider the last few major financial decisions you've made in the past year. Then look at the list above. Did you make an investment or take a gamble?
