Forum Archive Index - July 2001

["Phil Eriksen" <phil@acepay.co.nz>]

Hi Ben & Others,

I'm not all that interested in a discussion of morality either.  You do
raise an interesting question however about whether investing in the
sharemarket is gambling.

Investment in the sharemarket is not gambling.  Over the long term, an
"average" return in the sharemarket WILL increase your wealth.  While the
returns in individual companies are wildly different, while the margins on
the products those businesses produce will be wildly different, overall,
investment in assets that produce something above the "risk free" return
available will increase the wealth of those who provide the investment.
Overall.  Some people will lose a lot of money on the sharemarket ; overall,
however, sharemarkets go up, investing in something that produces an income,
then reinvesting that income, will increase your wealth.  Same applies to a
private business.  Starting or buying into an existing business is always "a
punt", but it is not gambling ; capitalism would not exist as we know it if
it was.

Gambling is different.  In all forms of gambling, the house sets the odds.
History has shown that the average return through sharemarket investment is
a profit.  It has also shown that the average return through gambling is a
loss.  If you enter into a transaction (ie go to a casino, pick a horse)
where the average return is a loss *you are trying to beat the odds*.  When
an investor aims to beat the long term returns that one could expect from
sharemarket investment, that is where an element of "gambling" begins to
show itself.  Just like gambling, they are trying to beat the odds ;
sometimes they win, sometimes they lose, but the odds do not change.

The bottom line is that if you gamble, you should do so with an expectation
of loss.  If you invest, in an "average" way (ie you are not especially bad
or especially good) then you should do so with an expectation of profit.
This is what seperates the two.

Definition Of Gambling : The odds are against you, but you participate
anyway and try to beat them.
Definition Of Investing : The odds are with you, so you participate because
it is rational to do so.
Where it gets fuzzy : You know the odds, but aim for far more that they say
you are due.

Cheers,
Phil

"Moral indignation is jealousy with a halo" - H.G Wells



>If investing in the sharemarket = gambling, and gambling = immorality, then
>investing in the sharemarket = immorality.
>
>Of course, if you do not believe gambling is immoral then this whole
>conversation will be irrelevant to you.
>
>So lets not focus on whether gambling *is* immoral or not, lets instead
>focus on the question: is investing in the sharemarket gambling?
>
>Throwing the cat amongst the pigeons?  Maybe we should call in a
>philosopher...;-)
>
>Best Regards
>
>Ben Dutton



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