Rant. Playing the stock market isn’t a gamble.

It does wind me up when people think ‘playing’ the stock market is the same as gambling.

We don’t play the market (singular). We invest in the markets (plural).

The ethos we follow at Plan100 is based on Nobel-prize-winning academic research. Not on a wing and a prayer. There aren’t any Nobel prize winners writing anything in the gambling arena, as far as I’m aware!

This month’s article explores the difference between gambling, speculating and investing:

  • Gambling = Buying a few shares in the stock market = Having a laugh
  • Speculating = Actively trying to trade shares = Playing the market
  • Investing = What we do on behalf of our clients

“Don’t look for the needle in the haystack. Just buy the haystack!”
Jack Bogle

We aim to take the emotion out of it and look at the evidence.

Gambling

Let’s start with a (true) story.

Years ago, Joanna and her sister visited a casino in Sydney, Australia. As well as the typical games you’d expect to see, such as Roulette and Blackjack, they play a traditional game over there called ‘Two up’.

A player (called the ‘spinner’) stands in the centre of a ring and tosses two coins into the air off a wooden paddle (called the ‘kip’). They bet on whether the coins will land both heads up, both tails up, or one of each.

Joanna joined a crowd gathered round the ring watching one spinner who’d had a run of wins. It seemed he was successful every time he tossed the coins, and the cheers of support got louder and louder.

She watched as he went for one more toss… then just one more… standing tall and confident, he bet everything (all his winnings, his house, his car, his wife, his children), tossed the coins again… and (you’ve guessed it)… lost the lot.

His whole body crumpled with despair as he shuffled out of the ring.

That’s gambling.

Watching that experience taught Joanna she wasn’t tempted to ever go down that route.

Timing

Unlike gambling, time is our friend when it comes to investing. It comes back to the Ken Fisher quote we’ve shared before:

“It’s about time IN the market, not timing the market”.

OK, I concede that the timing of when you enter the stock market is an unknown. You just don’t know if the market is near the top, sitting in the middle, or at the bottom.

Your entry into the market is speculative (but not a gamble) because markets can go down as well as up.

Have a look at this ‘growth of wealth’ chart from our friends at Timeline. Whichever line you look at goes up and down a bit in the short-term, but the overall trend is up up up – as long as you wait long enough.

Growth of wealth

How long is ‘long enough’?

Yes, there is volatility, because there are times when the market drops. But when you can leave your investments where they are for long enough, is that a gamble?

You might wonder what time period counts as long enough. I’d say: “Don’t commit to stocks unless you can leave them for at least five years”.

What that means is you shouldn’t put capital into the markets that you might need to access and spend within five years.

Why five years?

We can’t guarantee what will happen in the future, but we can look at the past.

Looking back, the worst single year was for Trivium 80 in 1974 when it was -34%. If you’d invested then and got your timing wrong, you’d be unlucky. Over five years, the risk greatly reduces. Over 10 years, the chance of losing your money would be very small.

Timeline has also provided us with this useful graph which shows the minimum and maximum losses (the pink bars) and gains (the green bars) for all our portfolios over the past five years.

Risk Metrics

As always, we recommend you invest in low-cost funds, diversify widely, and then stick to the plan over the long term without being swayed by market movements or short-term media hype.

For more reassurance or information, please give us a call.

P.S. If you’d like more quotes about investment, see here https://ofdollarsanddata.com/investment-quotes/

Lance Baron

Certified Financial Planner (CFP) based in East Sussex, UK. We support people in Southeast England with more than £500K to invest by building a financial plan that will help them live the life they want… until age 100