Why the stock market isn’t just legalized gambling

It’s hard to argue with the notion that playing the stock market is just like gambling. After all, you’ve heard your aunt tell the story about your uncle’s best friend from college, who knew Steve Jobs and made a fortune investing just $1,000 in Apple. And you’ve also heard your aunt complain about how your uncle lost $10,000 investing in Vonage.

That’s because people focus on the aspect of the stock market that is like gambling: everyone is always looking for the big win. Yes, some people do get lucky, but for the most part, stock market success requires a controlled, balanced strategy. Like every other thing in life that is good for you, self-discipline, consistency and time determine success.

It’s also important to understand that the stock market isn’t the same as playing blackjack or slot machines. Gambling is a zero-sum game. The winner takes money from the loser, and no net value is ever created.

The stock market, on the other hand, increases wealth for the entire economy.

Why? Because when you buy a stock, you buy a share of ownership in an actual company and a share of the profits that company generates. The rest of the profits are put back into the company, allowing it to grow, develop new products and services and create jobs.

It’s similar to when you join a credit union – you own a share of the institution, and your share of the profits is given to you in the form of lower loan rates, higher savings rates and in some cases, an annual dividend.

Stock prices move up and down as investors try to predict how much profit will go to shareholders. It’s very difficult to assess future profits, because so many events and factors can affect them. For example, companies might struggle with the availability of supplies to make products, political unrest if the products are manufactured overseas, the cost of shipping and distribution, new laws that restrict or outlaw a product or line of business, a scandal caused by a careless social media post or industry disruption. While investors are pretty good at predicting many things, most of those events are completely unpredictable.

That’s why a big win in the stock market is as hard to come by as a winning lottery ticket. Slow and steady wins the game.

Heather Anderson

Heather Anderson

Heather Anderson covers consumer financial news for CUInsight.com, offering readers tips on budgeting, setting and achieving financial goals, and developing a healthy relationship with money. She is co-founder of ... Web: www.financialfeed.com Details