hi i'm jimmy in this video we're going
to answer the age-old question
is investing gambling now since we are
in fact a learn to invest
channel you might guess that our answer
is
obviously going to be no of course it's
not gambling
but before we jump to that conclusion i
actually think that the real answer is a
bit more
complex than that a bit more nuanced and
i'm going to try to back up my opinion
with some historical facts okay so let's
jump right in
so he's investing gambling well first i
really think we need to define gambling
and when i googled the definition of
gambling well here's what they gave me
the first one two parts the first part
was that
it is playing a game of chance for money
the next one
was to take risky action in the hope of
achieving a desired result
and i'm not sure that that second one is
terribly helpful
since uh risky action could almost be
anything is flying in an airplane a
risky action is that gambling
or is driving a car or is crossing the
street a risky
action we are in fact taking a chance
to achieve a desired result and if
that's the definition of gambling well
then pretty much
everything would fall in that so is
investing the same as playing a game of
chance
for money well at first glance i could
actually see how
somebody might jump to this conclusion
and
i guess we could really gamble in the
stock market or
invest in the stock market i guess you
could do both or either or so i think it
would be a bit irresponsible to say
absolutely not putting a hard-earned
money into the stock market
is not gambling i think that's a bit
irrational i think a more proper way to
present this
would be to pose a few questions around
investing
first what is the goal of us investing
and second
how long are we investing for i think
the time one is important because
let's say the date let's take day
traders
the vast majority of day traders cannot
consistently make a living
being a day trader for any significant
period of time
because trying to predict what will
happen in the next minute
or five minutes or even the next day in
the stock market is a very very
difficult thing to do
which by its definition would mean that
there's a low probability that we would
get that accurate
but the longer our investment horizon
becomes the further we get
on this scale well the more that becomes
the higher the probability that that
becomes less like gambling so obviously
time is important
and then the other question is what is
our investment goal
well personally i once had a friend come
to me
and they had just come into some money
they got like 10 000 or something
some amount along those lines and he
said that he wanted to invest it
i said okay cool what's the long-term
goal with the money he went on to
explain that he needed to turn
the ten thousand dollars into i believe
it was seventy five
thousand dollars within a year needless
to say i was a bit surprised by this
and i went on to explain to him that it
couldn't be done and
he said that he knew it could be done
and i explained that
technically yes it can be done but only
if you're willing to gamble
in fact our odds are probably better to
go to a casino
and pick a few roulette numbers and hope
we hit on that
than trying to turn around such an
enormous return
in such a short period of time trying to
return 750
in just a year was simply unreasonable
so unreasonable expectations
if you need to achieve those
unreasonable returns it is more like
gambling than if you
go for let's say average returns or
reasonable returns
well then he tried to convince me that
we could in fact achieve those returns
using stock options
and once again revisiting our example
from before
about is crossing the street uh gambling
well it's crossing the street is not
gambling if we do it smart
sure crazy things can always happen and
there could always be an accident
but the majority of the time crossing
the street is not in fact gambling
but trying to use stock options to make
750
in a short period of time is like trying
to cross a 10 lane
highway during maximum traffic time and
if we knew as much about stock options
as my friend knew at that time well this
would be like trying to cross
the very same highway at the very same
time but this time do it blindfolded
sure we might make it across but why try
it all
especially when long-term investing is
so so much
safer so before we shift over to some
facts to consider
before jumping into the assumption that
investing and gambling are the same
thing
i do agree that putting our money into
the stock market
can be risky or even gambling if we are
after crazy high returns
or a short-term investing horizon it's
deadly if you try to combine both
the longer we're willing to let our
money work for us well the safer
the investment becomes the less it
becomes like a gamble and more it
becomes like an
investment let me illustrate what i mean
by this from the safety side of it
so i was able to pull down the total
return of the s p 500
going back to 1928. so this 37.9
return well this was from the start of
1928
all the way through to the end of 1928
and clearly that's a positive return
and then 1929 that was the start of the
great depression
well that was a negative year and that
negative year was followed up with a few
more negative years since then
so if we were to scroll through all of
these years there were 93 years
during our time period including 2020 so
not up to the end of 2020 but
close well out of those 93 years the
stock market the s p 500
shared a positive return 73 of the time
so clearly this means that investing for
a year
is a lot better than investing for a
short period of time
since in theory we would make money 73
of the time
but what if we would go longer what if
we would invest for five years
so basically what i did here is i
grouped it together
every five years and then we pushed it
forward a year and then again and again
again
all the way through until 2020. so using
all of the five-year groups all the way
through the five-year running period
time periods there were 89 total time
periods well
out of those the five years was up
each five year group they were up 87
percent of the time
so that looks better certainly better
than it did
for the one year holding period but now
let's shift over to a 10-year holding
period
now we have 84 time periods to consider
and over those time periods
93 of the time there were positive
returns
posted and if we were to do this very
same thing but this time hold it for 20
years
well over the 74 different time periods
that we have a rolling 20-year period
a hundred percent of the time in the
past 93 years
the stock market the s p 500 has posted
a positive return
so clearly just by looking at all of
these numbers
we can see that the longer we invest for
the higher prof the higher the
probability
that we will in fact get a positive
return and i think that this nicely sums
up the question
is investing gambling to me the simplest
answer is
well the longer you're willing to invest
for assuming we're willing to perform
about average which is in this case what
the s p 500 did
well the more likely that we are
investing the longer we do it for
then we are gambling now of course if we
wanted to try to outperform the average
if you wanted to try to
outperform the stock market we could do
that by picking
individual stocks sort of warren buffett
style who
went out of his way not just to buy the
stock market average he went out there
to try to pick individual names now if
you're curious i actually created a
video where i go through
eight steps to analyzing a stock i touch
on everything
from the documents we should be reading
trying to come up with a fair value
trying to identify when to get rid of a
company when to
figure out which companies are best to
invest in so if you're curious perhaps
that could be a good next video for you
to watch
i got a link right here i got a link in
the description below and thank you so
much for sticking with me all the way to
the end of the video
i really appreciate it thank you and
i'll see in the next video