Is investing in the stock market gambling? Why or why not?
Yes.
But it’s not socially-acceptable to call it gambling.
No, it is called speculating. It would be gambling only if stock was purchased at random.
However in common parlance some forms of speculation such as sports betting are referred to as “gambling”. So if it is meant to say that it is no different than that sort of betting then yes it is “gambling”.
Actually it’s not even analogous to that form of gambling, because the risk-bearing involved in the stock market is an instance of entrepreneurship. When an entrepreneur wins, he does so by shifting the structure of production so as to better serve consumers. When a sports better wins, the only “consumer” that is served better is himself, and only at the expense of the losers.
Out of the entrepreneurial activity of stock traders, new wealth is created. Whereas actual gambling is always a zero-sum game.
Garet Garrett’s The Driver is based on this premise.
I can’t wait to get a chance to read some Old Right novels.
Not quite. An informed for-profit sports bettor by the virtue of betting large sums based on profound analysis moves the prices offered by the market to better reflect the real odds. This enables the uninformed for-fun sports bettor (who is a customer, buying fun for some small stakes) to bet at a more realistic price. He does not have customers of his own, but by the information he provides he indirectly serves the customers of a betting shop or a betting exchange.
EDIT: Perhaps most fundamentally he provides the monies for the for-fun sports bettor to bet against and therefore makes his fun possible.
Very concise and important distinction. I’m sick of people calling investors and traders “paper pushers that create no value”. It’s like saying an accountant who pushes pencils does nothing, or a convenience store clerk just pushes paper all day because he runs the register. It’s just strange to me how one of the most important market functions and the people who take part in it are vilified.
Thanks, GJ, and good points.
I marvel at the contortions some internet discussants go through so as, at all costs, to always, always be right.
Yeah, whatever. I took part in betting exchanges and was fascinated with them. I gave them quite a bit of thought and I do not like to see them dismissed out of hand. A for-profit sports bettor does indeed provide something which is of value to people other than himself. Whether you care to understand this or not.
Are you suggesting that stock traders are entrepreneurs? I would beg to differ. An entrepreneur is the one with the vision and makes efforts to make that vision a reality. A stock trader just puts his/her money on the line. Although I take it one can argue that putting money on the line is a form of entrepreneurship.
Sorry for the delayed response folks. For some reason, I have not been getting the emails to this post, so I thought it was a dead forum.
Let’s take the instance of day trading. Day traders just wait for the stock to go up or down, and get paid of the price of the stock, not the return on capital. Is this not gambling?
All entrepreneurs put their own savings on the line, that is, to forgo current consumption for the hope of an increase in future consumption.
It is entirely a form of entrepreneurship.
Mises, HA: "This opinion manifests itself most clearly in the description of stock-exchange transactions as a sort of gambling. (…)
Every word in this reasoning is false. The owner of capital does not choose between more risky, less risky, and safe investments. He is forced, by the very operation of the market economy, to invest his funds in such a way as to supply the most urgent needs of the consumers to the best possible extent."
People who invest in the stock market choose WHERE to invest or hire people to do that for them. In doing so. they determine the arrangement of production and bear the weight of the uncertainty regarding that arrangement (that is, they profit or lose).
The price of the stock is a function of the return on capital.
Yes and no.
It depends on [amongst other things]:
[1] the percentage of total wealth “invested” in stocks, versus how the rest of your savings are allocated, and ..
[2] if you are using money you can afford to lose or money you cannot afford to lose. See:
Thank you Suze Orman.
Well, this is how the stock market should be, but things change when the FED continuously buys bonds and floods the banks with liquidity which is then turned towards security and commodity markets. The stock market is not based on fundamentals, only on misconceptions and elevated expectations brought about by perpetual inflation. Thus, it is accurate to say that the stock market, as we know it, is a form of gambling.
I think it would be more accurate to say that the government seems to be determined to turn the stock market into a gambling arena by distorting more and more the underlying information regarding productive activity. Let us also not forget the madness of outlawing “inside trading”. However, the moment the stock market does become so distorted as to render no more useful information, there will be no effective capital markets any longer, and thus, no more capitalistic elements in the economy.