This probably will be a post which there is not much analysis of stocks.....but just wanted to express something close to my heart – Investing and Gambling..
Stocks – A lot of people on the street when asked about stocks, will associate stocks with greed, Asian Financial Crisis, Global Financial Crisis, danger, speculation etc.
It is probably useful to go back to the original definition of stocks/shares......wikipedia gives a good summary in http://en.wikipedia.org/wiki/Stock
“The stock or capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors. Stock is distinct from the property and the assets of a business which may fluctuate in quantity and value.”As we can see, stock is just the capital paid into the business......through the passage of time, it has evolved in a properly regulated and controlled environment where people can trade in shares.....then the invention of such things as options, derivatives, CDO’s, and all the exotic financial instruments.
I had many conversations with friends about the topic of shares and investing through the past few years.....most of them will say that playing shares is like gambling. Again, it is helpful to look at the definition of gambling.
http://en.wikipedia.org/wiki/Gambling
Gambling is the wagering of money or something of material value (referred to as "the stakes") on an event with an uncertain outcome with the primary intent of winning additional money and/or material goods. Typically, the outcome of the wager is evident within a short period.As we can see, one of the main characteristics of gambling is ‘uncertain outcome’. However, when you really think about it, isn’t buying insurance gambling as well? Let’s say if i buy life insurance this year, just in case i die or be involved in an accident, then my family will get a certain amount of money. So, in this case, I am paying the insurance premium to the insurance company (let’s say $300 p.a) to
gamble against the possibility that i might die/be in an accident. So, is buying insurance gambling??? I know i’m muddying the waters here, but this is something that we should think about.......
Anyway, back to investing. For me personally, investing IS gambling if you have no idea about what your outcome is at all, meaning that you are CLUELESS about the outcome of your investment. It is a bit like roulette, where the possibility of the ball reaching a certain number is unknown. However, if you invest with knowledge, it is similar like buying a business. Say for example if you have $1m, and you want to invest in a Asian grocery shop in Melbourne. What will determine which shop will you buy? Obviously a normal person will do his due diligence and find out how much is the rental, how much profit they expect to earn, who is the customers etc etc etc. Therefore, once you do the research, you decide on the store to buy. Again, when you invest in the grocery shop, obviously you have no control on the actual outcome (100% certain), but you have confidence in the possibility of a good outcome. (probably 80% certain etc)
So, from the example above, we can apply that logic in investing as well.
Why am i posting this? Mainly to provoke people to think.....:) A lot of religions do ban gambling, and I have got my fair share of people telling me that investing in shares is what a christian should not do.....feel free to disagree with me :)
