Gambler or Investor? Or Why We Trade

It is an old cliche – the stock market is the capitalist casino, where gambling wears a mask called investing.

The idea is that so-called investors aren’t actually putting their money to work. They are engaging in a socially acceptable version of the lotto. Like a player at the table, they are trying to get hot—riding the momentum of a bull market, pulling back when the wheel of fortune goes cold.

Trading can be a brutal game, just as anyone who goes to Las Vegas know that the house usually wins. Does Warren Buffett plays a more respectable version of Texas hold ’em? Is John Paulson counting mortgages like card counter in a game of single-deck blackjack? What is the truth?

The answer is Thrill.

“Sometimes, the line between investing and gambling is hard to see, what starts as a research-driven investing, can turn into the blind gamble” – says Tony Emerson, an investor and gambler in Austin, Texas. He adds that in investing, the losses and gains are generally less dramatic than roulette or poker, but the more you risk, the more chances to gain you have.

From the neurological point of view, both investors and gamblers, when thinking about “something that is going to make me money”, have the pleasure center in the brain lightened up. Such a stimulation might be dangerous, so it is important to remember about environment and motivation. But what is the motivation? Impressing people or empowering yourself? Is it tightened to self-esteem?

Eventually, the main difference between healthy investing and gambling is about thrill. When investing transforms into the sole purpose of buying and selling securities, the line is crossed – investors are gamblers.

They will be gamblers, until the thrill and, likely the money, is gone.

Retrieved from The Wall Street Journal