If you don’t study any companies, you have
the same success buying stocks as you do in
a poker game if you bet without looking at
your cards.-Peter Lynch Can you make more
money gambling in a casino or investing in
the stock market?
Both investors and gamblers make decisions
on where to place their money based on the
likelihood of certain events happening.
The probability of high gambling returns is
low.Infact, the slot machine is the ultimate
game of chance as its returns are random.
You have nocontrol over whether a row of bananas
or cherries will appear.
The odds of getting a winning combination
are the same as for being hit by a comet – one
in 1.6 million.
When you invest in the stock market, you have
slightly more control over the outcome since
you get to pick the stocks.
While you can’t predict future growth, you
can look at a company’s fundamentals, evaluate
how its directors make decisions, and decide
whether you think ithas a winning model.
While past performance isn’t a guarantee
of future results, past earnings can give
you a sense of how a company may react in
different market scenarios.
Probable vs. potential loss/win If you invest
in a stock with reliable earnings and revenue
growth, you increase your odds ofsuccess.
Across the risk spectrumof investments, you
c an choose to gamble on uncertain outcomes
(high risk) or invest in more certain outcomes
So why do some investors choose to gamble?
Theoretically, investors are paid higher returns
in exchange for accepting higher risk, but
the odds of succeeding are lower.
Consider the retirement scenario of the gambler
who invested in dot-com stocks with norevenues
Most dot-com stocks failed.
This is the risk of betting without looking
at your cards.
To establish a risk level that reflects your
ideal safety level, listen tomy podcast where
I discuss risk and safety levels: GoldsteinOnGelt.com/low-risk
(The opinions expressed on The Goldstein on
Gelt Show are those of the guest, and not
necessarily my opinion or the opinion of Portfolio
Resources Group, Inc.)