Is Investing The Same As Gambling?

21/11/2017

William Shakespeare once wrote: “All the world’s a stage, and all the men and women merely players.” Philosopher or layman, life is all about how you play the game – do you gamble or do you invest? When investing and gambling in casinos, sports and money markets, the question is certainly worth giving some deep contemplation!

Gambling and Investing: Defining the Difference

Investing refers to the act of systematically risking money on an expected outcome, with an explicit projection of getting a positive return. As such, an investor 'expects' to make a long-term profit. For example, a card counter may have a positive edge against a Vegas casino, and therefore set up a bankroll with a projection of doubling the money progressively. Other examples include sports betting using mathematical and statistical systems.

In contrast, gambling refers to the act of randomly risking money on an outcome, without projections of making a positive return. As such, a gambler can't reasonably expect to make a long-term profit. Games based on chance such as online slots have an in-built casino edge and therefore can’t be played with authentic skill. As a result, they can only be considered to be 'gambling' because you're always relying on luck to win (although very lucky gamblers can win millions from progressive jackpots and huge sports betting accumulators).

Like everything in life, both investing and gambling entail an element of risk. However, for the investor, the risk is made as part of a system and strategy and therefore has a predicted positive expectancy. In contrast, gambling is based more on random luck, where there is no system and no long-term strategy designed to grow money.

Turning a Gamble into an Investment

Assuming a bet or trade has a potential edge in your favour (e.g. a sports betting system or skilled casino strategy), your mindset and actions can instantly turn it from a gamble into an investment – or vice versa. In his book, Enemy Number One, professional horse racing bettor, Patrick Veitch, explains how he made millions from UK bookmakers. However, he also notes how the agents he used to place the tips never made any long-term money, when they could have made a huge amount with online bookmakers.

How can this be? The answer is simple – they lacked the patience to only bet on Veitch's selections, using an investing strategy. Instead, they got greedy and placed other bets, losing them the investment edge and turning it into a reckless gamble. An investor may use the following type of strategy to make long-term money from skilled selections:

  • Bet all selections to one unit win or each-way with an online bookie.
  • Use a stake level equal to 1% of the bankroll.

Over time the effects of compound interest would make the money grow faster and may eventually lead to the maturity of capital into a large sum of money. In contrast, the gambler might use random stakes, chase losses during drawdowns and fail to implement rules. Furthermore the gambler's psychology and understanding of compound interest may be flawed.

This concept therefore makes an important point for anyone with a skill set in sports, casino or financial betting markets: who you are and your integrity can define whether you’re gambling or investing. From this perspective, something isn’t innately a gamble or an investment – it’s an opportunity. You define whether it’s an investment or a gamble yourself – they’re merely different shades of the same thing.

Responsible Gambling using Investing Principles

The goal of most online gamblers is to have fun and occasionally beat the book or online casino. The rush of striking a bet or having a spin is ultimately all it's about. And when done with the right attitude and bankroll management, online gambling can be a tremendously fun avenue of entertainment. Equally, the gambler can dream about winning a progressive jackpot or 50,000-1 accumulator on the football, and for some, the dream can become a reality. Interestingly, this is where elements of successful investing can be used to make gambling much more responsible, even if the market you're gambling on can't be beaten with genuine skill – only luck. Here are some pointers:

  • Budget/Capital: Only risk money you can truly afford to spend having fun, knowing you could lose it all.
  • Risk Management: Set a strict staking policy and session, weekly and monthly limits.
  • Discipline: Don't backtrack on your budget and risk levels.
  • Honesty: Don't blindly ignore how much money you're spending gambling.

Adhering to these rules won't create an investment out of a gamble, but will ensure responsible gambling and maximum amounts of fun. Ultimately, the markets you risk money in can innately define whether you have the potential to gamble or invest on them. However, in beatable markets, where you can get a mathematical edge via skilled betting, who you are and your actions can define whether you're a gambler or investor.