Investing or Gambling?
We spent Thanksgiving in Las Vegas.
While I never thought my first trip to Sin City would be with my wife, mom, dad and sister, we had an incredible time.
Amazing hotels litter the strip. Visiting The Venetian rewards you with views of a stunning replica of St. Mark’s Square and sightings of gondolas carrying passengers through the hotel via the man made river. For just a moment, it wouldn’t be unrealistic if you actually thought you were in Venice. Unfortunately, I had the recurring thought of how the hotels were paid for and stuffed full of luxury courtesy of all the visitors’ gambling losses. I kept it to myself, I’m not a buzz kill.
A fan favorite in giving the casino money is blackjack.
“The game was still termed ‘21’ when it gained popularity in Nevada in 1931 as the State first chose to make gambling legal. To draw more people to the game, some casinos then offered a special bet: A hand featuring either of the black jacks (the Jack of Spades or that of Clubs) plus the Ace of Spades would pay 10-to-1 odds on the lucky player’s bet. Although casinos later discontinued this peculiar payout, the name ‘blackjack’ or ‘black jack’ remained, as the game is known today.”
The Venetian can afford the magnificent costs because no matter what, if we play long enough, the odds ensure we end up giving their casino money.
When playing blackjack for example:
“The reason that the house always has an edge on us players in blackjack is the simple fact that we have to act first at the table. Every time we hit a card and bust, which happens about 28% of the time, we will lose even though it turns out the dealer busted as well.
As a starting point the house has an edge of 8% on us players..”
Gambling odds are brilliantly designed to give us just a taste of winning. My parents walked away with small winnings from blackjack. Even as spectators my wife, sister and I were elated. There is no denying the intoxicating feeling that comes from taking money from the dealer. Despite this, I can never get into gambling. Understanding the casino’s insurmountable edge, I can’t help but think of the better uses for my money when near the tables.
My disinterest in gambling surprised my mom. “How is gambling so much different than investing?” she asked.
Investing and gambling are regularly compared. After my boots on the ground Thanksgiving research, here are some clear differences:
Time – ally or enemy?
The most important difference between investing in the stock market and gambling in the casino is the value of time.
As discussed, the casino odds ensure that over time you will give them your money. Long-term play is destructive. The stock market provides the opposite assurance. Time in the stock market allows compounding to work its magic. A powerful reason to start investing early!
Ownership and Payout
Purchasing a share of stock gives you ownership in the company. As an owner, you participate in the growth of the company. Think of all this opportunity. New products, new technology, increased productivity, new markets, etc. All options for putting your money to work toward appreciation. In addition, there is no limit to the value your ownership can return.
Gambling on the other hand is a zero-sum game. You win or lose on your bet. No value creation. Just a wager with an outcome. And blackjack caps that positive outcome at only a 3-2 payout! Yawn.
Diversification
Investing does not confine you to concentrating your risk. Whether you buy multiple individual stocks or a fund, you can spread your exposure amongst various companies. This allows you to mitigate the risk of any one company ruining your investment.
On the contrary, if we play roulette in addition to blackjack, we have only increased our chances of walking away with a lighter wallet.
A tip for visiting the casino:
It just so happens I will be returning to the casinos this weekend for my good friend’s bachelor party. Knowing I will likely lose money, is gambling completely off limits? No. I have mentioned before, a solid financial plan allows room for some speculation. My strategy is to go into the weekend with a number I am comfortable losing. With this approach, I can enjoy the thrill and excitement of the tables without getting caught in the downward spiral of trying to “win it back”.
