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".
Marko: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.
J. Grayson Lilburne:Out of the entrepreneurial activity of stock traders, new wealth is created.
Garet Garrett's The Driver is based on this premise.
liberty student: J. Grayson Lilburne:Out of the entrepreneurial activity of stock traders, new wealth is created. Garet Garrett's The Driver is based on this premise.
I can't wait to get a chance to read some Old Right novels.
J. Grayson Lilburne: Marko: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.
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.
J. Grayson Lilburne: 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.
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.
Giant_Joe: J. Grayson Lilburne: 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. 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.
Marko: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.
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.
J. Grayson Lilburne:When an entrepreneur wins, he does so by shifting the structure of production so as to better serve consumers.
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?
ViennaSausage: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.
All entrepreneurs put their own savings on the line, that is, to forgo current consumption for the hope of an increase in future consumption.
ViennaSausage: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.
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).
ViennaSausage: 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?
The price of the stock is a function of the return on capital.
ViennaSausage: Is investing in the stock market gambling? Why or why not?
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:
Financial Safety Rule Number 1
For more information about onebornfree, please see profile.[ i.e. click on forum name "onebornfree"].
onebornfreedotblogspotdotcom: ViennaSausage: Is investing in the stock market gambling? Why or why not? 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: Financial Safety Rule Number 1
Thank you Suze Orman.
J. Grayson Lilburne: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.
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.
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."
Esuric: J. Grayson Lilburne: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. 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.
Esuric: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.
Error abounds in all entrepreneurial activity. If there was no error, that would imply no uncertainty, which would mean no profit/loss, which would mean no entrepreneurship. The Fed aggravates that error. But erroneous entrepreneurship is entrepreneurship still. Stock traders TRY to make investments in the hopes of making a profit, and they do so with real potentially productive capital. The stakes are entirely different than with gambling. If investors "win", that means they have directed capital in a propitious way, and consumers win too. If they "lose", that means they have directed capital in a non-propitious way, and consumers lose too. That is simply not the case with gambling. Fed-induced errors or no, stock trading is a fundamentally different endeavor from gambling.
Marko: 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.
I believe you, but this doesn't render Lilburne's point moot. Someone who invests in the stock market directly speeds up the accumulation of capital by increasing the supply of loanable funds by virtue of buying a stock. Someone who bets on a sporting event does no such thing.
Political Atheists Blog
J. Grayson Lilburne: liberty student: J. Grayson Lilburne:Out of the entrepreneurial activity of stock traders, new wealth is created. Garet Garrett's The Driver is based on this premise. I can't wait to get a chance to read some Old Right novels.
You will love it. It is a great story, beautifully told.
I want to read more of his works, but there is so much to read and so little time.
J. Grayson Lilburne: Marko: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.
Fellow gamblers and spectators also benefit from gambling... the poker player needs others willing to join in, the horse bettor needs other bettors to take his bets, and so on. The ESPN-ish channels regularly feature Poker and other gambling competitions which produce real entertainment value to viewers.
Clayton -
Giant_Joe:Very concise and important distinction. I'm sick of people calling investors and traders "paper pushers that create no value".
I think a distinction needs to be made between the people who buy up the original shares when a company first sells them, and people who do secondary deals. When people buy the original shares, their money can be considered an investment in the company. The money goes to the company and can go towards buying new equipment. But people who buy "second hand" shares are not contributing anything at all towards the company (are they?). I don't see how they can be classed as "investors" - because the "investment" has already taken place.
What Went Wrong with Economics
mickanomics: Giant_Joe:Very concise and important distinction. I'm sick of people calling investors and traders "paper pushers that create no value". I think a distinction needs to be made between the people who buy up the original shares when a company first sells them, and people who do secondary deals. When people buy the original shares, their money can be considered an investment in the company. The money goes to the company and can go towards buying new equipment. But people who buy "second hand" shares are not contributing anything at all towards the company (are they?). I don't see how they can be classed as "investors" - because the "investment" has already taken place.
"v. in·vest·ed, in·vest·ing, in·vests. v.tr. 1. To commit (money or capital) in order to gain a financial return"
The person who sells a stock divests, and then is no longer an investor. The person who then owns the investment now is the one who has money committed. He is now the investor.
J. Grayson Lilburne:The person who sells a stock divests, and then is no longer an investor. The person who then owns the investment now is the one who has money committed. He is now the investor.
True, but the system is not really working in the way one might hope. Say that a rich and clever man thinks that the product that company X has just invented is going to do really well in the future. He keenly goes round buying up all the (pre-existing) shares. He has not given company X any money. Company X is not able to produce any more of their product by virtue of the wealth or insight of the rich man. How has the rich man contributed anything to the system?
It's true that the trading of the brokers, individually, might not be to invest in some long-term capital project. It just so happens that the partaking of this type of activity by many people allows the company to have a pool of funds for funding such projects. So no one will buy shares thinking "I'm doing this to fund project X" but rather, are just looking to make a buck. The company allows this activity because it gives them access to funds that allow for direct capital investment.
Giant_Joe:The company allows this activity because it gives them access to funds that allow for direct capital investment.
I don't understand how. They would have the same funds just as readily if the "rich and clever man" didn't exist. All that company X desires is someone to buy the shares in the first instance.
DD5: Thank you Suze Orman.
U R most velcom, my child
mickanomics: Giant_Joe:The company allows this activity because it gives them access to funds that allow for direct capital investment. I don't understand how. They would have the same funds just as readily if the "rich and clever man" didn't exist. All that company X desires is someone to buy the shares in the first instance.
The guy who buys the shares in the first instance is willing to pay more for them because they can be sold later on.
Yes, it's a legal gambling.
Manic: Yes, it's a legal gambling.
Care to elaborate?
Marko:The guy who buys the shares in the first instance is willing to pay more for them because they can be sold later on.
Indeed true, but the "second hand" share dealing has its downsides. If people borrow in order to buy second hand shares then this makes the market a recipe for ABCT. Additionally, what is the use of people "investing" in shares for fractions of a second? That seems to be a recipe for front-running and other frauds. If there was some in built disincentive for people to own shares for too-short a period, the money that companies could get for their original share sales would be scarcely affected.
Maybe it is, as you envision it.
If it is, then it is still no more or less true for stocks than it is for any other "investment" - including [dare I say it here?] gold/precious metals.
If all of your life savings were "invested "in stocks, then I would agree with you - it is , as you say gambling [since you would be gambling/speculating your precious life savings on an unknown/unknowable future].
But then again, if all of your precious life savings were "invested" in gold, or any other single investment class, it would still be gambling [since you would still be gambling on an unknown/unknowable future.]
The only difference would be the future economic scenario being predicted/gambled on, as obviously, gold and stocks do not do well under the exact same economic conditions.
If people borrow in order to buy second hand shares then this makes the market a recipe for ABCT.
No. It's credit expansion that will cause the business cycle.
Additionally, what is the use of people "investing" in shares for fractions of a second?
The trader gets money. Companies may find that allowing this activity can help boost share price. A trader isn't necessarily an investor in some sense. They don't contribute to large capital projects as much as they contribute to the shuffling around of capital.
If there was some in built disincentive for people to own shares for too-short a period, the money that companies could get for their original share sales would be scarcely affected.
I'm not sure I follow here.
Giant_Joe:No. It's credit expansion that will cause the business cycle.
I am assuming the rest of the system is unchanged, in which case borrowing IS credit expansion
Giant_Joe:Companies may find that allowing this activity can help boost share price.
How and why should it?
Giant_Joe:I'm not sure I follow here.
The price people are willing to pay for shares is should be dependent on what dividends they will get. They may also be willing to pay more if they can have some flexibility of ownership. They may only want to invest for a few months or a year and then sell up when they need some cash (over and above the dividend payments). The right to sell is a bonus to them. But who the heck has a strong desire to invest for a day, or an hour of five seconds? If there were some penalty attached to selling in less than a day (say 1%) and a penalty for selling in less than a week (say 0.5%), and a penalty for selling in less than a month (say 0.2%), then that is not going to put people off buying shares to any significant degree. But it would have a dramatic effect on levels of fraud.
mickanomics: The price people are willing to pay for shares is should be dependent on what dividends they will get. They may also be willing to pay more if they can have some flexibility of ownership. They may only want to invest for a few months or a year and then sell up when they need some cash (over and above the dividend payments). The right to sell is a bonus to them. But who the heck has a strong desire to invest for a day, or an hour of five seconds? If there were some penalty attached to selling in less than a day (say 1%) and a penalty for selling in less than a week (say 0.5%), and a penalty for selling in less than a month (say 0.2%), then that is not going to put people off buying shares to any significant degree. But it would have a dramatic effect on levels of fraud.
Are you just a control freak? Simply looking for excuses to crack down on something you don't like?
What the hell does it have to do with you if people hold stock for a few seconds? Is it any water off your back?
They have the right to. Thats it. I'm sure they also do something else that is nice, but at the end of the day it's their right to and the buck stops there.
mickanomics:True, but the system is not really working in the way one might hope. Say that a rich and clever man thinks that the product that company X has just invented is going to do really well in the future. He keenly goes round buying up all the (pre-existing) shares. He has not given company X any money. Company X is not able to produce any more of their product by virtue of the wealth or insight of the rich man. How has the rich man contributed anything to the system?
If the rich man has overvalued the share, then this entrepreneurial error will be revealed when the market discovers it as such, and as a result ,the rich man will suffer losses.
If the share values had absolutely no relation to actual reality then the stock market would render no useful purpose. It would not exist.
You're basically saying that since the actual money was recruited only upon the initial issuing of the shares, it makes no difference if later on, the value of the share tanks or hits the ceiling . For example. If a desk was bought at $200 with the issuing of a $200 share, it doesn't matter if the share was later sold for $10 or $500. A $200 desk is still a desk and the same employee may occupy it. Is this correct? If so, do you see the fallacy behind this reasoning?
Marko:What the hell does it have to do with you if people hold stock for a few seconds? Is it any water off your back?
Very mush so. If the people doing it are very highly paid, and those wages come from the rest of us (that includes me), and there is no benefit to society then I am pissed off.
Please explain the benefit to society of owning shares for 5 seconds.