Investing involves purchasing assets with the intention of later selling them at a profit; gambling relies on chance with no expectation attached.
Even though the relationship between gambling, speculation, and investment are well-established, little is understood regarding problematic financial speculation as a potential behavioral addiction. This study seeks to fill this knowledge gap by reviewing both conceptual and empirical relationships between these constructs.
Buying on Trends
Investment and gambling share some key characteristics, including the risk of loss and pursuit of gain; however, they also differ significantly in various respects. For instance, investing is usually long-term while gambling tends to be shorter-term activity; additionally investing is typically regulated by financial authorities while gambling often lacks stringent standards.
However, some activities blur the distinctions between gambling and investment/speculation, such as lottery-linked savings accounts or premium bonds (see Guillen & Tschoegl 2002). Furthermore, betting on financial indices resembles placing bets on future share values.
Research at these intersections reveals a diversity of opinions on what defines gambling, speculation and investing. Some studies have revealed strong empirical relationships between certain speculative activities (day trading penny stocks shorting and day trading etc) and gambling, leading some to assume these activities don’t fit within this umbrella term despite having direct connections to problem gambling. Unfortunately this can lead people to believe speculative activities don’t qualify as gambling yet in reality they do!
Taking Short-Term Risks
Risk and return are inextricably linked when investing, unlike gambling where one risk can potentially prove catastrophic. Therefore, investors generally spread their funds across several asset classes in order to minimize exposure to losses; additionally they often choose assets which can provide both income and capital appreciation simultaneously.
Gamblers on the other hand tend to invest in single assets or opportunities with a hope of reaping certain returns – for instance they might look out for stocks that they perceive could become take over candidates in hopes they will rise in value and eventually sell at a profit.
Studies that compare stock trading to gambling are many. Unfortunately, most rely on small samples of self-reporting investors or use novel investing scales that do not necessarily transfer well to an investment context.
Taking Long-Term Risks
Investing is the practice of purchasing assets with the aim of either increasing in value or producing income; gambling involves placing bets for the chance of reaching desired results; even bets stacked heavily in your favor could still qualify as gambling if their outcomes depend on luck rather than skill alone.
However, unlike investments which typically provide positive expected returns, most forms of commercial gambling offer negative expected returns for players. To mitigate risk when investing, diversifying a portfolio can help spread out risks across many assets and spread out any possible losses that arise from poor investments.
Stock trading has been linked with problem gambling in some studies; however, such studies often rely on small samples of people self-referring themselves to treatment clinics or using investing scales that do not adhere to rigorous validation methods like those employed for gambling research – producing results which could be misleading.
Taking Short-Term Profits
Investing is a highly disciplined, deliberate process requiring patience and planning. It involves building wealth over the long term while mitigating risks using risk mitigation strategies – this distinguishes investing from gambling which involves placing money in games with uncertain outcomes.
Gamblers tend to focus on chasing returns, which means they tend to stock their portfolio with the top performing stocks at any given moment and sell as soon as the price rise has ended.
Investors, on the other hand, tend to focus on cash flows rather than stock prices when making decisions and will remain invested even when prices decline. When choosing their investments they take into account factors like company management and their experience running the business as well as dividend payments that have consistently been made and raised regularly over time. They will limit trading activity so as not to incur transaction fees associated with gambling activities.