Am I Investing My Money Or Gambling With It?

Posted: Aug 19, 2019 11:24 AM
Am I Investing My Money Or Gambling With It?

Source: AP Photo/Wayne Parry

“Investing” is defined by Webster as: “To put money into business, real estate, bond, etc. for the purpose of obtaining an income or profit. Placing money into something you believe in and expect a return from.”

“Gambling” is defined this way: “To play games of chance for money. To take risk in order to gain advantage.”

What is the difference between gambling and investing?

First, we must realize that anything can be a gamble. Some, taking the concept of gambling to an extreme, would say that getting out of bed in the morning is a gamble. To be practical, let us use a common belief that gambling is the taking of a risk to obtain a quick gain. Though on the surface, this definition seems as though it could easily fit investing, and without a doubt the stock market could and often is misused and gambled with, there are significant differences between the two. To understand the distinction, we need to look at the main characteristics of each.

First, gambling has no social value. The act of gambling is a selfish act. It is about winning for one’s self. Whereas investing actually has social value. The concept of investing itself is a social act. One person puts up money so another person can start, expand, and run a business. The business then utilizes the capital investment to produce goods or services for the community. In turn, the community uses these products for its betterment. It is investment dollars that make our economy so vibrant.

Secondly, with gambling, someone has to suffer loss for someone else to win, whereas with an investment, no one has to lose, and all can gain. To illustrate this point, let’s say I buy XYZ stock at $10 a share and the company does well. My stock is now worth $20 a share. I sell the stock to another person who holds onto the stock as the company continues to grow and the value increases to $30 a share. Everybody wins. The company that offered the stock originally received the capital it needed to become a profitable, successful business. I win, in as much as I doubled my money before selling, and the person who purchased my stock won by the increasing value of the stock purchased. 

Now, I don’t want to assert that stocks always appreciate in price. On the contrary, many businesses do not produce desired products for consumption or don’t manage their business well. This leads to investors selling off their ownership in the company and the value of the company declining. Yet even in decline, someone’s loss is not someone else’s gain. Because purchasing stock is purchasing ownership, you participate with other owners in the gain or loss of the company’s value. It has nothing to do with someone gaining by someone losing or vice versa. 

A quick illustration may be beneficial here:

Suppose I start a chocolate store, but I don’t have enough money to purchase all the fixtures and inventory I need. So I ask my brother to invest in my business and he agrees. In exchange for his money, I give him 50% of my company that is represented by the stock certificates. If I manage, market and sell well, we will both realize the benefits and eventually, if the business is sold, it would be sold for substantially more than we each individually invested. If I manage the store poorly and I am unable to keep the doors open, we both lose everything we put in. Our gain is not at someone else’s expense, nor is our loss due to someone else’s gain.

From a biblical perspective, consider I Thessalonians 5:15:

“See that no one repays anyone evil for evil, but always seek to do good to one another and to everyone” (ESV).

When is investing gambling?

Investing is gambling when we treat the stock market as a casino. A prudent investor will either:

  1. Research the companies in which he is interested in having ownership, or;
  2. Hire someone to do the research for him. This information could include company finances, management information, fundamental and technical analysis, what products and/or services the company offers and the impact the company has on people—all with the goal of finding a company that the investor believes has strong financial fundamentals and high possibilities of being profitable and successful, while also being representative of their personal values.

When a company matches those criteria, we are willing to purchase ownership in said company through the purchase of stock. Then careful, ongoing review of the research criteria helps us decide when we no longer believe the company is on the right track or does not have the potential to grow as we would prefer, so we sell the stock.

There are some people, however, who hear of a stock rising in price and bet the stock will continue to do so, with no research or diligence, no understanding about the company or its products or services, no management or financials, and definitely no concern regarding the company’s impact on people or the values they represent. Instead, they may just purchase the stock in the hopes it will continue to go up. There is no difference here than betting on anything else. It is nothing more than a bet—not an investment but a get-rich-quick scheme.

I conclude with this wisdom from Proverbs 28:20:

“A faithful man will abound with blessings, but he who hastens to be rich will not go unpunished.”