“Successful investing is anticipating the anticipations of others.”The people that buy stock as a long term investment expect to receive a reasonable dividend every year and for the value of their investment to increase over the years. The investor will also realise when a company is in decline and divest themselves of the shares before the company share price drops.
John Maynard Keynes
There are products that were an essential part of our life twenty years ago that we no longer use. If the companies that produced those now useless products did not diversify then they perished. Two examples are photographic film and newspapers.
There are people that do not buy stock as an investment but rely on short term changes in the market value to realise a profit, they ‘play the stock market’. The word ‘play’ is in general use in the stock market community and has been synonymous with ‘bet’ since the sixteenth century. The word is also used in casinos where a croupier at the roulette wheel will ask you to ‘faites vos jeux’ (make your play).
The stock market community has gone to a lot of trouble to disassociate itself from the idea that trading in stock is gambling and insists that everything is as respectable as can be. The website Investopedia lists its five biggest stock market myths and also redefines the word ‘play’ as it is used by the stock market. After reading the above Investopedia definitions I think that Investopedia needs to redefine gambling as well.
The world’s major banks have been in trouble over the last few years because of problems with their ‘investment’ banking arms. The so called investment banking is really based on ‘playing the stock exchange’ where a winner can make millions. A number of investment bank employees have been caught by the gambling bug and have lost millions of dollars of the banks and its client’s money. A psychologist has said that gambling on stocks is the same as gambling on horse racing and produces the same reactions in the person doing the gambling.
A long term investor who buys stock with his own money, not borrowed, can be said to be investing his money with a possibility of appreciation of the value of his stock and yearly dividends. This investor is not gambling. You have to be careful what you buy of course, as Facebook investors found out.
A person that expects to buy and sell stock on speculation for profit is without doubt a gambler. There are very many opportunities for gambling, and stock exchanges are prohibiting some options because of the high losses they create. There are some interesting phrases generated by this activity for instance, ‘Buy on the rumour, sell on the news’ or ‘Buy on weakness, sell on strength’ or as Gabriel Wisdom said in his column ‘Buy high, sell low, repeat until broke’.