Investing in Shares is Not Gambling
‘Fortune brings in some boats that are not steered’.
Last week I met someone who had won the lottery. Over £2 million. During our conversation I mentioned that I prefer investing to gambling, to which they questioned what the difference was.
It was a good question.
Mention that you invest in shares, and someone is likely to suggest that you are gambling. It’s easy to see why some people think this way. We can all dismiss something we don’t understand as a way of making sense of the world. Indeed the person who doesn’t understand what they are doing when buying shares is probably taking a gamble.
However, making money from stocks and shares is not gambling for the intelligent investor.
1. Investing Is Not A Game Of Chance
Gambling significantly relies on chance.
Investing relies more on skill, knowledge and intelligent judgement. However, to complicate things, both contain elements of luck, but more in the former than the latter.
An example to illustrate the point.
Intelek is a company that spent most of the last year trading at around 15.5p, until it received a takeover bid and the share price jumped to 31.5p in the space of one day.
An investor buying shares in Intelek the day before this event could reasonably be deemed to be quite lucky in their timing. Where investing is less about luck and more about judgement lies in the reason why the investor bought shares in Intelek in the first place.
This is a small but profitable company, largely ignored by the market, operating in a niche area and with capable management. It had many factors that would lead the investor to assume that the share price may increase over time, and also that it was not improbable that the business may be a takeover target which of course is what happened.
Had the takeover offer not happened, it is still likely that the share price for this company would have increased over time anyway, making it an interesting potential candidate for investment.
2. You Make Your Own Luck
Unlike the lottery winner, in investing you make your own luck and the more time you put into it, reading everything that you can, the luckier you seem to get.
‘I'm a great believer in luck and I find the harder I work, the more I have of it.’
3. You Can’t Plan To Win The Lottery
If you want to become wealthier you will need a better plan than a lottery ticket. Investing in shares in quality companies for a bargain price is one of the best ways of watching your money grow and increasing your wealth over time.
Where money is concerned, you can’t leave it to chance.
‘Depend on the rabbit's foot if you will, but remember it didn't work for the rabbit.’
Jamie E Smith is the author of Making Money From Stocks And Shares
This content was provided by one of our users, Jamie
