Is the stock market gambling? That is a question that gets asked from time to time and when you buy a stock and it immediately goes down it sure seems like gambling. When you buy stocks, you can lose all your money. So, what then, is the difference between gambling and the stock market. Are the two really that much different?
Sometimes it may seem that you can lose just as easily at the stock market as you can at the blackjack table. Ask anyone who has lost money in Enron how they felt after their stock went to zero. You can lose big on a stock but rarely do companies go bankrupt and the stock go to zero. In blackjack or craps, however, losing all you have is quite common.
The difference between pure gambling and buying stocks of companies is that you are betting on the future of the company and you have a track record you can research. If you are invested in many stocks, you might say that you are invested in the future of the country. If something terrible happens to the country, like a natural disaster or a terrorist attack, stocks will go down. If the country flourishes and good times prevail, the stock market will most likely go up. By investing in the stock market you might say that you are betting on our future.
Gambling in a casino is a whole different scenario. There is no casino game that the player has an edge. Just take a look at how big Las Vegas has become to be sure that the house always has the advantage. You might be able to beat the house now and again but over the long run you will lose. When you are gambling in Las Vegas, you better be using money you don't need and are prepared to lose.
The key to investing in the stock market is doing research. If you were to just take a list of stocks and throw darts at them, it would be more similar to gambling. However, the more you learn about how companies are valued and operate, the more ammunition you will have when picking stocks.
When you buy a stock and it immediately goes down, it might sometimes feel like you are gambling but that is mostly out of frustration. If you do your homework and pick your stocks carefully, you should be able to make money long term in the stock market. One thing is for sure: the stock market is a much better place to be 'betting' your money than the casinos.