Gambling and Investing

Nick Radge of The Chartist fame made a comment on facebook this morning, asking the question; “All trading can be considered gambling… is something I hear on occasion. What do you think?”

Those who have heard me speak at various seminars before have probably heard my thoughts on the matter already, and I made similar comment to Nick as well.

“I’ve often said that the only difference between gambling and investing is simply how much you know and how much you can control. Using a proven system with stops and pre-determined exit points to trade professionally looks more like a business to me; while picking stocks at random and hoping they go up in value quickly is more or less the same as roulette.”

I think that to some degree, the same can go for property investment. The markets at large are beyond our control; however, we can control which markets we choose to invest in and if we select those based on quality information, the odds are skewed in our favour. Or, even better, if we select properties which have potential for us to add value (such as by way of a renovation, or a subdivision, or obtaining plans and permits, or……) then we are taking the unknown out of the equation a little and proactively creating a profit instead.

On the other hand, we often see people buy a property and simply…. wait, hoping for the market to move and increase the value. I can’t help but feel that this is much the same as gambling on the sharemarket, or even the roulette tables. Picking a suburb based on a ‘hunch’ (or worse, a ‘hot tip’!), not being able to control the value at all, and then losing money on a negatively geared property doesn’t make a whole lot of sense to me as part of a business plan.

So, what are your thoughts? Is there any difference between gambling and investing; and any difference between the two when it comes to shares and property…?