Isn’t Stock Investing Just Gambling With Your Money?

A coin flip representing the question - isn't the stock market just gambling?

I hear this question quite often.  My first answer is no, investing is not necessarily the same as gambling.

However, the way most people invest, for all intents and purposes, is gambling.  That’s why you hear of them giving up because they lose money all the time.

Let’s think about true gambling for a moment.  When you are flipping a coin and betting on the result – that is gambling.


Because there is no amount of research you can do to discover if this flip is more likely to be heads (or tails).  And there is no action you can take in advance that will influence the outcome.  The odds are always 50-50 for every coin flip.

Now consider a stock investment.  There is all kinds of research you can do in advance that can increase your odds of making a good stock pick.

You can investigate things like the following for example …
•    Has there been a lot of insider buying recently?
•    Does the company have solid finances or is it heavily in debt?
•    Has it’s sales and profits been increasing consistently over time?
•    Is the management experienced in the industry with a long track record of success?
•    Has the company paid a dividend consistently for years and increased it’s dividend every year?

And there are many other aspects of the business concerning it’s chances for success.  There are many clues here, don’t you think?

Take one, for example — insider buying.  Insiders sell and buy shares of their company all of the time.  There are many reasons why insiders might sell, i.e. they think the stock might go down, or they have a child’s college tuition coming due or they just need the cash.

But there’s only one reason why insiders buy stock in their company.  They see prospects are good and the stock may be going up in the future.  So if you see a high level executive in a company suddenly buy 100,000 shares of the company’s stock, that’s telling you something.

Of course, even with many clues, there are no guarantees in life and especially in the stock market, but doing this kind of research in advance greatly increases your odds of a good outcome over time.

You can even buy this research for a very reasonable price if you don’t want to do it yourself (which is what I do – I told you we were going to do this the easy way).

But you can’t do anything like this before you bet on heads or tails of a coin flip.  And there is no research you can buy either.  The odds are always 50-50.

Now consider how the average investor chooses stocks.  They probably don’t do any research at all.  So they effectively throw away every advantage investing in stocks has over pure gambling.  So in their case, it is essentially gambling.  And they get the same unfortunate result.

But if you follow the research and other simple steps outlined in this book, you will greatly increase your odds of success with your investments.  But you have to do them all.

And if you do, you will not be gambling.

You will be investing.

And there’s a big difference.

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