Differences Between Gambling and Investing in Stocks
This week, on National Day, I would like to write on above topic because I see a lot get burn by contra on recent sell down on pennies. There is nothing wrong in playing contra, which to me is a type of gambling, but there are strategies for gambling. Entering a contra trade blindly with no game plan is suicidal. Most people fall into traps of letting losses run while they take their profit fast. You need to follow people who trade contra well with stop loss point like brother @ongbeeheng, @Stockcham, @contraboy, @bensontan , just to name a few. If not, most of the time you get burn trading through contra play especially in the long run as most retail trade contra in and out without a plan. Most of the people who make are people who are discipline, and seriously I admit I am not one who is discipline enough when it comes to trading. Seriously I admire them and their abilities.
Investing and gambling are seemingly alike in the sense that they both involve risk and choice. Both an investor and a gambler must decide how much money they would like to risk depending on the situation at hand. Most traders especially on platforms like Forex risk around 5% of their capital trade. However, when comes to investing, traders base their investment plan on the information available on the market forces.
Investors diversify their asset classes to spread the risk. Through spreading risks, the adversity of the loss expected is minimised or even avoided. Gamblers just like investors must also assess the amount of capital they intend to play with. In their case, pot odds serve as a good guideline to determine a suitable amount that they can risk to maximise the returns without jeopardising their finances.
Gambling and investing, however, differ regarding the risk management options. Unlike gambling, investors have quite a variety of options that allow them to prevent unwanted loss of the risked capital. For instance, if you invest some capital and it drops by 10%, you still have a chance to sell your stock to somebody else before a further loss occurs and as such, you get to retain 90% of the risked capital. On the contrary, if you place a bet and your prediction is not accurate you lose everything. Another major difference between gambling and investing in stocks is the time factor. Investments can go for years, but gambling lasts for a short span of time(contra).
Despite the fact that both gambling and investing involve risk of capital for future profits, there are more differences than similarities. Gambling is based speculation while investments rely on good information and a suitable investment period to maximise the returns.
So if you cannot make it through gambling on stocks, maybe changing to a long term investing mind set may not be a bad idea. The worst is keep trying to recover what you have lost previously, and dig a bigger hole to get yourself bury into. DO NOT BORROW from banks or loan shark to gamble on shares. That is the last thing to do. Once you have a deficit, sometimes is hard to come back. Psychologically straining. Have to think for your family as it is hard t start afresh if lose everything, Sometimes in life you can no longer recover back from setback especially if you are not young.
For further discussion and debate. This thread is not to induce buying and selling. Nor to condemn contra or encourage long term investment, as there are people who do well be in playing contra or investing in shares. This thread Is just for education purpose only. Please do your due diligence when buying and selling of shares and seek your financial advisors for clarification. All the best and Happy National Day to all.