Many of you liked last week’s post “The Rise of Investainment”. Hence, I was encouraged to continue the train (or chain if you prefer) of thought with yet another one. However, in this post, I just hope to make a simple point – Investing is Not Gambling, and Gambling/Betting/Trading is Not Investing.

The following is a message from the Centre for Personal Finance Disease Control about a particular dangerous virus called Pretend Investor Disease (PID).

PID is an especially malignant disease, that if left untreated, can suck your finances dry. It works by convincing you that the way to make real money is by making it fast. It works by convincing you that others are making it quicker than you are. And it works by convincing you that gambling/trading/betting is investing.

On the other hand, many investors simply think of investing in the stock markets as gambling. They don’t invest in the stock markets because they think it’s gambling.

To them, investing and gambling look similar.

In gambling, you are betting on outcomes. In investing, you seem to be betting on prices. For investing there is an organized exchange and an entire ecosystem. While this was not true for gambling, technology has changed all of this. Previously you had to go to Vegas or some other place to bet. Now you can do this from the comfort of your mobile. And it is not only about spinning the wheels and betting on cricket matches or playing fantasy sports (and believing you have some skill), but you can also virtually bet on anything. And if that was not enough. You can also get to win lossbacks. What a wonderful play of words by some genius…whoever thought of it. I know I digressed a bit, but you know what, I am not really sorry for this digression.

Thinking investing is equal to gambling is yet another form of PID. In this you think you are investing in your own business (where you seem to have more control) or you invest in the popular safe investments.

Whatever your view might be, PID is extremely contagious. The more you hang around pretending investors, the more you will be exposed to dangerous financial disease spreading agents such as betting, gambling, insider tips, hot investments, ponzi schemes, safe investments, perfect investments and hashtags.

Coming back to gambling, a bookie on a Netflix documentary “Caught Out: Crime. Corruption. Cricket.” said something insightful – “Gambling is a part of Life…People will gamble or bet on anything if not cricket.”

The reality is people like to gamble. It comes naturally to us. If we think there is quick money to be made in something, we are likely to go for it or at least be tempted to go for it. We even convince ourselves- It’s just this one time. It’s just a small portion of my net worth. I will stop when I have made some money. Sorry to prick this bubble – it doesn’t work that way. If you lose money in a trade or bet, you might want to play again to recover your lost money. But the worst happens when you win. You suddenly think you have a golden hand. So, you want to do this just this one more time and before you realize, you are hooked on. You have become the next sucker of this roulette spinning industry even if somewhere you are thinking you are investing.

According to an interesting piece of content by none other than Robinhood (courtesy Robinhood Snacks) – “In the US Super Bowl (the biggest sporting event in the US), gambling set sportsbook records this year, with an estimated 50M+ Americans wagering over $16B (double of last year’s estimate). It was the first Bowl to take place in a state with legalized sports betting, which was a boost for betting apps. A highlight reel:

• MGM Resorts, which runs the BetMGM app plus sportsbooks on the Vegas Strip, said it was BetMGM’s most successful Super Bowl and most-bet-on single-game sporting event ever.
• FanDuel said it was processing 50K bets/second at its peak, and averaged 2M active users throughout the game.
• DraftKings predicted that the Bowl was going to be its largest customer-acquisition event of the year. (Oh, and one of its bettors won $2.7M on a $1.7M wager on the Chiefs.)

What happens in Vegas… hasn’t stayed in Vegas. Gambling platforms had strong growth last year as more states legalized sports betting. It’s now legal in 36 states plus DC, while mobile betting is allowed in 26 states (up from 18 a year ago). Americans placed $73B worth of legal sports bets last year, up 70% from 2021 — and sports-betting companies raked in nearly $6B from those wagers. Meanwhile, calls to the national hotline for people with gambling problems have soared.”

The scenario closer home is not different.

(Ex-Shark Tank fame) Ashneer Grover’s latest startup has launched CrickPe following the success of Dream 11. We are told 15 Crore users play Dream 11. Such numbers are thrown at us to give us the illusion of everyone is playing this game (and that we might be missing something out). The best part is that we are told to Dream Big with Dream 11.

This brings me to this point – Just because 15 Crore users are doing it does not mean it is investing or it is something worth doing. Most of the time these numbers are thrown to even attract more numbers.

For centuries, we assumed that human beings generally made the best decisions possible with the information they had available. But in the past few decades, we have found out that is not simply the case. We have discovered an uncomfortable truth: Each of us, no matter how smart or well educated, or well-intentioned we may be, is unduly influenced by a number of cognitive biases and logical fallacies that skew our decision making and lead us in unintended directions without even being aware of it.

And we fall prey to either one of these things….

We do not invest thinking it is gambling or we gamble thinking it is investing.

But…

Investing is not gambling.

Investing is not speculating on stock prices.

Investing is not options trading or trading for that matter.

Investing is not buying something, hoping the price will continue to go up, and that you will be able to find someone else to sell to.

Investing is not about thrill and entertainment.

Investing is not a sports game, whether fantasy or anything else.

If this is true, what is investing?

Investing is a serious and patient game (using the word game because people love it) of putting your capital in good to great businesses. It is not about stock picking. It is about business picking.

Investing is an act of buying businesses (in the context of stock market investing). It is never about betting on prices or price action of any sort.