> while they tend to be absent from more affluent ones.
It’s not that they don’t want to be, it’s that affluent neighborhoods tend to keep things that are considered “low class” out of them. The only Safeway in my city that doesn’t sell lottery tickets is the one in the most affluent neighborhood.
I bet the better off do gamble on the financial markets though
There are many ways to use the financial markets that are not gambling. Buying an index fund or Coca-Cola isn’t gambling; it is not even very risky. Nor are individual stocks gambling, as you can get a reasonable idea of what a company’s price ought to be and how it is likely to perform in the future, at least for well-established companies. It’s also harder to get into debt, as long as you don’t short, because you can only spend money you have, and the stock does not become worthless if your analysis is wrong. (At least, there are warning signs)
Now day-trading? I consider that gambling, because any particular day’s price movement is a lot closer to random.
Buying a stock or mutual fund is the very definition of gambling: placing a monetary bet on an unknown future event. Just because this activity has historically had a +EV, doesn't make it any less gambling.
Purchasing a business or parts thereof is not “gambling” any more than purchasing a house is “gambling”. People purchase them (or are supposed to) for the value they provide either through income or asset appreciation in the case of businesses or shelter in the case of the house and not for the singular promise of some winning outcome unlike games of chance. The only expectation is that the asset purchased will continue to provide value throughout the period of ownership which is no more or less than what you would expect of many other assets or goods you might purchase and none of this is contingent on mere chance alone. Just because somebody quotes a ridiculously high or low price does not necessarily mean the intrinsic value of the asset has changed. Overpaying for an asset is not the same as losing money to a slot machine. Have I “lost money gambling” if I buy something in a store the day before it gets discounted? These are just risks that exist in any market. Do not confuse this issue just because some have decided to use them as mere vehicles for price speculation. People speculate on the price of eggs, oil and gold as well but that does not mean buying eggs for breakfast, fuel for your car or a gold necklace for your wife is “gambling”.
By this definition prime loans are also gambling. When you bet on something risky then you are gambling. When you bet on something not risky you are not gambling. Also consider that not investing will generally lose money over time due to things like inflation. If we define the goal to be holding as much value as we can, holding dollars is more risky than investing in many stocks (or bonds, which also have a risk of defaulting). A better definition of gambling is something like "taking unnecessary and unproductive risks."
I'm not sure I buy any definition of gambling that depends on the outcome. If you lose money or tend to lose money, then it's gambling, but if you win money or tend to win money, then we change the name to "investing?" Risk includes upside and downside risk.
It doesn't depend on the outcome. If a bank only does prime loans and spreads out it's loans multiple borrowers, has a good reserve ratio etc. and still loses it all, that still wasn't gambling. This is more clear if you consider that storing value in money is also risky. When you get paid in a currency, you automatically begin investing in it at the same time. This is even more clear with foreign currencies. If you got paid $1 million in Turkish Lyra and do not store that value somewhere else, that is more gambling-like than putting it in the S&P. I guess you can say that any time you increase the amount of risk in an investment to get more reward you are gambling. But you can invest in something other than USD with the same risk but with greater reward. For example you can invest it in US bonds (over multiple issues) which has a similar risk to the USD but a greater reward. Still, under such a definition, any business is gambling. We can accept that, but then we have no word that differentiates owning a grocery store from betting all your money on a coin flip, so then the word "gambling" becomes much less useful or really useless in my opinion.
Is it gambling if it has a +EV?
Those who already took 99% of the pie can safely bet on every possible outcome.
Most can avoid to lose completely while alive, but they have no path to a winning position, and others are trapped in a situation where it's so hard to go down to a net lost that they lose ability to understand that individual hard work and wiseness is not going to defeat societal asymetries.
Financial markets produce a net positive outcome for investors (gamblers), no? The average rate of return in the S&P500 is about 10% and it's considered the baseline for thr stock market.
The gambling equivalent is day trading, not holding VOO for a decade.
> bet the better off do gamble on the financial markets though
Much less. Something I’ve noticed is the parents of the wealthy teaching their children to invest versus e.g. day trade. In middle class or poor households, on the other hand, it’s not uncommon for the kid to be trading crypto instead.
This is a misleading judgment the expectations out of the stock market being that the investments produce money generally speaking are expectation positive. Gambling is expectation negative always. That's the defining difference in my opinion.
Can you lose money in both absolutely but only actual investments have historically positive expectations. The stock market has had net growth of 7%+ on average in the last 100 years. Gambling has not increased the gamblers pockets at all its only shrunk there pockets
When they do it, it's gambling. When we do it, it's investing.
Investing is putting money into (hopefully) productive use, like a company with revenue, in an expectation of a return.
Gambling is basically redistributing money according to a random numbers generator, It's a negative sum game (because the house takes its fee), but a surprise positive spike game. That spike forms an addiction in the less fortunate.
> Investing is putting money into (hopefully) productive use, like a company with revenue, in an expectation of a return
The big differences are time horizon, addiction and expectations.
The longer the term, the less actively one must watch it and the lower the expected returns, the more likely it’s investing. The shorter the expected turnaround, the more closely one watches numbers go up and down, and the more one is focused on turning multiples than yields, the more likely it’s gambling.
Any stochastic process can produce gambling behaviour. Only a positive-sum game can facilitate investing.
When you buy a stock, you're not contributing it to the company's productive use. If I buy $1000 of MSFT, Microsoft doesn't get an extra $1000 in their bank account to invest in their business. That $1000 is going to another bettor to settle his previous bet, and at some point in the future, I'll sell and get an unknown amount of money to settle my bet. Just because historically betting on the stock market has been +EV doesn't mean it's not still gambling.
> When you buy a stock, you're not contributing it to the company's productive use
You are marginally reducing their cost of capital.
Sure, but that's pretty indirect and a far cry from "putting the money to productive use." Unless you're an early investor or IPO participant, your actual money is not being directly put to productive use by the company you are "investing" in.
> that's pretty indirect and a far cry from "putting the money to productive use."
All finance is indirect. Particularly at small scale.
> Unless you're an early investor or IPO participant
Plenty of IPOs are entirely secondary. And public companies regularly raise money via at-the-market offerings, where a random trader may wind up cutting a cheque to the corporate treasury. (I’ve been a seed investor and IPO investor. My effects on the outcome were rarely singularly meaningful.)
In a large offering, a small IPO investor has about as much direct effect on the outcome as someone buying the pop publicly. In aggregate, however, their actions are meaningful and productive.
Put another way: contrast two economies, one in which most capital is tied up sports gambling (negative-sum game), the other in which it’s in equities (positive-sum long term), one will outperform the other.
Early investors and IPO participants put their money in expecting that 20 years later you would buy the stock off their hands. It feels weird to call it causation when it's traveling back in time, but in a way buying the stock contributes to investment.
If you buy MSFT specifically you'll get regular, fairly predictable dividend payments and not just an unknown amount of money in the future.
MSFT goes up a tiny fraction when you buy. That means MSFT employees with stock grants get a tiny "raise" courtesy of you and with no cost to the company. Microsoft can also use their more expensive stock to make acquisitions. So you are contributing to the company's productive use in at least 2 ways if you buy its stock.
Buying MSFT doesn't meet the criteria to be called gambling, for me.
The difference is investing has a positive expected return. Betting against the house does not.
> investing has a positive expected return
Can you tell me more about this. I've never heard of it before. Is there a theorem?
Except everyone on financial markets try to sell idea that you can "learn" and actively trade on their platforma and make living of it.
Which make it no diffetent for average Joe than gambling.
Plus it's fun and "dangerous" to slum it with the plebs on occasion. But you don't want that shit close to where you live.
> The only Safeway in my city that doesn’t sell lottery tickets is the one in the most affluent neighborhood.
Does the affluent community prohibit it or is Safeway self-policing?
I'd wager (heh) a bit of both. The distinction isn't that the affluent neighborhood gets to make its own decisions or be cared about by large corporations whose presence ostensibly enhances their quality of life, it's that poor neighborhoods don't. The reason the latter have these socioeconomically deleterious establishments is the same reason they don't get grocery stores or gyms: the people making the decisions don't see them as customers to serve, but as marks to exploit. And suddenly we're back to the notion that privilege isn't necessarily having it "better," but sometimes just having what most would consider the dignified standard.