InvestorQ : Is investing a little bit like gambling in stocks?
Bhavika Nehru made post

Is investing a little bit like gambling in stocks?

Answer
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Mary Joseph answered.
2 years ago


Forget about investing, even trading is not about gambling. You gamble when you do not have any control over the odds of an event happening. Betting on the weather or horses or lottery tickets is a lot akin to gambling. Both trading and investing are more a risk-return trade-off wherein you actually leverage on risk in the quest of higher returns. Remember that, investing is not gambling, so punting in the market is not investing. In gambling, you rely heavily on chance and odds. While there is an element of risk in investing, you are in a position to manage your risk. Investing is a conscious effort to grow your money steadily over a longer period of time. Don’t mistake it with gambling!
Investing is not only about returns; it is also about risk. Remember, every act of investment is a risk-return trade-off. There is a dilemma here that most investors will face. Higher returns entail higher levels of risk but then higher risk by itself will not assure you higher returns. Such risks have to be properly calibrated. There are two questions you need to ask yourself. Is this the maximum return that I can possibly get for the given level of risk? What is the minimal risk I can take to get my target return on investment? That is where the dimension of time comes in handy. Investing is not a timeless activity. Warren Buffet may have said that “My time frame for investment is forever”. But you obviously cannot invest that way. Don’t take a 1-year perspective to invest in equities. Keep a minimum time horizon of 3 years and on the higher side, you can set according to your financial needs. It has been consistently observed that when you invest for longer periods of time in a phased manner then the returns will far outweigh the risks and also even out the volatility in the investments.