Are Stocks Like A Casino? No. But YES!

[mickeyd]

Blogger compares stocks to a casino in a well written comparison.

Let me clarify what I mean by stock market investing for the long run. By “stock market investing for the long run” I don’t mean that particular form of gambling shilled by the Financial Infotainment Industrial Complex that you can watch on MSNBC, CNBC or Fox News after the closing bell. I don’t mean what’s referred to by the nonsense headlines “Hot stocks to buy now!” or “Best Fund Managers 2015!” being sold by Hot Money Magazine or whatever glossy garbage rots on newsstands this week. I really, really, don’t mean the ‘investing tips’ of day-trading e-news updates filling up your browsers on a moment-by-moment basis. I specifically mean purchasing a broadly diversified, low-cost (probably indexed) mutual fund, and never selling. I mean a holding period of at least 5 years, but preferably for 20 years or more. I mean purchasing diversified stocks with no end date, no sale date, in mind.

I specifically mean purchasing a broadly diversified, low-cost (probably indexed) mutual fund, and never selling. I mean a holding period of at least 5 years, but preferably for 20 years or more. I mean purchasing diversified stocks with no end date, no sale date, in mind.

Stock markets go up, stock markets go down. Businesses grow and businesses die. People buy and people sell. It doesn’t matter if you’re the long-term owner of stocks, because you will make your impressive percentage return on your money in the long run, no matter what.
Please understand: If you are a long-term investor in the stock market, you are not the gambler, you are the house, and the house always wins.

Stocks: The opposite of gambling | Bankers Anonymous

 

[Big_Hitter]

when you gamble in a casino you create risk where none previously existed


when you invest in stocks you are trading a risk premium for an increase in volatility


huge difference

 

[Fermion]

The house might always win, but it doesn't mean there won't be a long winning streak by big players that takes a toll on the house. The question becomes how big is your house and how long can you wait for the win?

The Trump Taj Mahal went bankrupt...just sayin.

 

[dallas27]

Futures are a casino, not stocks.


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[nash031]

Yeah I always kind of laugh at the bankonyourself.com commercial I hear every morning that tries to tell you their life insurance/annuity product will FAR outperform any IRA or 401K, and not to risk your savings in the "Wall Street casino", while also telling you that it's a product that the ultra-rich use, thus it must be good for Joe Everyman.

 

[daylatedollarshort]

From one of the authors of Triumph of the Optimists:

While a country has only one past, there are many possible futures. The likely rewards from equity investment are worth having over the very long haul. Yet the risk of shortfall is always present, even over lengthy investment horizons. Investors should not assume that favorable equity returns can be guaranteed in the long term; nor should they assume that stocks are safe so long as they are retained for a holding period of at least twenty years.

http://www.econ.uniurb.it/materiale/2781_triumph_of_the_optimists.pdf

 

[steelyman]

I posted this to a thread titled "Wall Street / Traders" back in 2012. But it's good for a repeat.

This is how the "experts" on networks like CNBC/Fox would like you to behave.

But it's better to watch these guys: if so, you're probably at the beach!

 

[NW-Bound]

when you gamble in a casino you create risk where none previously existed

when you invest in stocks you are trading a risk premium for an increase in volatility

huge difference

Very true!

... the risk of shortfall is always present, even over lengthy investment horizons. Investors should not assume that favorable equity returns can be guaranteed in the long term; nor should they assume that stocks are safe so long as they are retained for a holding period of at least twenty years...

True too. There's nothing certain in this world, except for... Ah, that worn saying again.

Anyway, whether one invests in stocks or something else, he is acting according to what he perceives as a less risky choice among the alternatives that he sees. Only the future will tell how things will work out.

 

[Texas Proud]

The house might always win, but it doesn't mean there won't be a long winning streak by big players that takes a toll on the house. The question becomes how big is your house and how long can you wait for the win?

The Trump Taj Mahal went bankrupt...just sayin.

Not privy to why it went bankrupt, but I would bet big money it was not from losing at the tables or machines....

The probability is that they were not able to attract enough suckers to support all the money that it took to run the place...

 

[gcgang]

http://www.businessinsider.com/stocks-for-the-long-run-dow-japan-2012-6

Stocks don't always work, even in "the long run".

Above article summarizes how it took almost two decades to break even twice in the 20th century, and shows how Japan, in 28 years, was DOWN 80%.

Author seems to think it is simple to see when high risk of this happening exists (high PE), seeming to advocate some form of market timing as a result.

Of course the author is Henry Blodget, who had his reputation tarnished during the tech bubble for recommending tech Stocks with no visible means of support.

Btw, current PE10 has only been higher than it is now 3 times - 1929, 2000, and 2008. God bless us all, everyone.


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[daylatedollarshort]

The Triumph of the Optimists link above (figure 5) shows that, according to their multi-country research, real returns from stocks have a 6% chance of being negative even over 40 years. The odds are greater stocks will do much better, but personally I would not bet the farm with a 100% AA in stocks at my age, as 40 years is longer than my likely remaining life span.

 

[petershk]

It's kinda funny because I think behavior has a lot to do with it.

Gambling for the most part has precisely know results... Over time. Gambling is utterly predictable. If a slot machine pays 98% back over 10 years you know pretty much exactly what you will get. Further... The act of gambling is not a value or dicing asset or activity (except to the casino of course).

Now if you day trade... That is a similar activity minus the known expected outcome. So that really is an unknown outcome activity...

If you buy and hold a broad index it's more like owning a tiny piece of a country or global economic output. You will eventually get back whatever % growth in output and value happens. If the US grows 4%/year over 30 years and you own companies whose value is primarily driven by that growth you'll probably have that kind of return.

Of course most huge companies have global presence so it's a more complex situation. Plus "economic growth" can be many things not just population or consumption.

So you still have the totally unpredictable outcome.

Lastly because we are "inside" the system it makes alternatives challenging. If you think the world financial system will collapse then where you invest doesn't matter much. You could buy gold bars and guns to protect them I guess... But then there's the person with the bigger gun and you can't eat the gold anyway .

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