Investment and Gambling

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What is the difference between Investment and Gambling???

In order to differentiate between the two, we should start by defining them. Investing is any activity in which money is put at risk for the purpose of making a profit, and which is characterized by the following:

1.       Sufficient Research has been conducted;

2.       The behaviour is risk-averse;

3.       The systematic approach is being taken;

4.       Emotions such as greed and fear play on role;

5.       The activity is ongoing and done as part of a long term plan;

6.       The activity is not motivated solely by entertainment or compulsion;

7.       Ownership of something tangible is involved.

8.       A net positive economic effect results;

On the other hand gambling is any activity in which money is put at risk for the purpose of making a profit, and which is characterized by the following:

1.       Little or no research has been conducted.

2.       The behaviour is risk-seeking;

3.       An unsystematic approach is being taken;

4.       Emotions such as greed and fear play a role;

5.       The activity is discrete  event or series of discrete events not done as   part of a long term plan;

6.       The activity is significantly motivated by entertainment or compulsion;

7.       Ownership of something tangible is not involved.

8.       No net positive economic effect results;

Difference between Stock investing and Gambling

Following are the important differences between Gambling and Investment

1.       Tangible vs Intangible

Gambling is an intangible product whereas stock marketing is tangible product or business.

2.       Gamble for Fun Invest for Profit

Gambling is a type of entertainment and nobody consider it is a means of better financial future. Stock marketing is a good way to build personal wealth long term investment will appreciate and at the same time one also earn dividend income from stocks.

3.       Relationship

In stock market investment relationship with a company ends only when one sell the shares and not based on the price fluctuation of the shares in the market, where as in gambling relationship ends when the game is over.

4.       Recovering of Losses

In gambling there is no option for recovering losses but in stock market investing, one can wait till the market prices goes up. Investing after proper analysis can help reduce the loss.

5.       Risk

Risk is involved in both gambling and stock investing, but stock investment risks can be managed or minimized through hedging and structuring portfolio with different types of stocks to match the risk appetite.

6.       Knowledge and Skill

In gambling no skill is required to win but in stock investment investor who analyses and understands the market and invests will get more profit than a person investing without prior knowledge about the stock market.