The Stock Market

By
      Rakeli Gichuki and Wambui Mukundi

The Stock Market

Well, a lot is said about the stock market, and to most, there is little to no difference between investing in the stock market and gambling. Admittedly there are certain aspects of gambling that may be deemed similar to trading on the stock market. For starters both are fundamentally randomly determined and unpredictable at least on the face of it. It has as well been argued that trading in the stock market like gambling merely involves capital transfer without creation of wealth especially when done for shorter gains. Of course the obvious counter argument is that when you purchase stock in listed company you buy a stake in the company and therefore creating wealth. However, it is important to note that knowledge of how the complex market works is what draws the line between investing in stock options and gambling. Whereas the latter, depends on sheer luck and a balance of probabilities, the former depends on accuracy of research done by individual or accuracy of advice given. Gambling is a single game played within a set of rules and hardly influenced by external events. The price of various stocks on the other hand is highly influenced by external events related to the industry or the listed company. A trader is therefore expected to keep abreast with such external factors before making his trade. This aspect of research renders a greater chance of success in the stock market than a player in gambling.

The presence of loss mitigation strategies available for the trader is also another key difference between the two. Investors in the stock market have a variety of ways to prevent loss of the risked amount. This advantage is not available to gamblers. While a trader can prevent further loss by selling shares of a company whose stocks prices are dropping, a gambler cannot retrieve his chip(s) once they are on the table if he senses defeat.

The concept of time is another key difference. Once a game or whatever activity associated with the gamble is over then the opportunity to gain ends with it. Investing in the stock market is a perpetual and therefore time rewarding. Investors have the advantage of receiving dividends for their risked money and the possibility of increase in the value of their stock over time. The law requires that information related to the stock market is availed to the general public.  Further it criminalizes unfair use of information by those having access to inside information at the expense of the public. This ensures that the shareholders or prospective traders are making informed decision based on the available information. This advantage is not available in the world of gamblers.

 In addition to the above, the stock market, specifically investing in share options involves acquiring a stake in a particular company. It is a means through which, an investor is entitled to the assets, and a fraction of profits and in unfortunate circumstances losses of a company, yet in gambling there is no creation of value.

However, in my opinion, it is misleading to use absolute statements when it comes to analyzing differences between the stock market investing and gambling. In both, there is an obvious degree of speculation on the risk of a certain venture as well as a considerable amount of skill required to improve chances of success. The difference then is, as stated earlier, the fact that gambling is a zero-sum game.

People go into the stock market or gambling for the sole purpose of achieving economic gain. Whereas, one option gives higher levels of success, resulting from intelligent guessing because of research done and information gathered; the other option is contrived to entice and entertain and not necessarily to create profits, or wealth.

Therefore, to succeed in the stock market, academic effort has to go into it. First, one should understand the various jargon's ordinary in the everyday dealings in the stock market. Moreover, for young people not able to afford the option of hiring an advisor, consider carrying out research on market analysis in groups of persons with similar interest.

There are opportunities engineered to give young people a chance to learn about the stock market. One is the young investors challenge in which my friend WambuiMukundi and I participate in. Alternatively, there are a number of low risk and capital investment options, which young people can pursue. One is the investment income approach where one invests in companies that offer dividends. The Collective Investment Schemes such as the Unit Trust and Mutual Funds offer interesting options for low-risk investing. 

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References

Joha Sparks, Fellows with black hurts. Retrieved from:

http://www.fee.org/the_freeman/detail/those-fellows-with-black-hats-the-speculators

Michael gutmann, Are trading and gambling the same. Retrieved from http://m.futuresmag.com/2013/12/16/are-trading-and-gambling-the-same?t=editors-choice

Stephan Abraham, Going All-In: Comparing investing and gambling. Retrieved from http://www.investopedia.com/articles/basics/09/compare-investing-gambling.asp