Why stock investing as nothing to do with playing in a casino



In our opinion, this is the number one mistake done by individual investors. Trading a lot is not only not necessary but it will cost you money. Why? Simply because each time you buy and sell you pay fees. Also timing the markets is simply impossible. Trading too often is very common mistake of new investors. They believe that they need to be stuck to their computer following everything that is happening on the market by the minute otherwise they will end up losing money. They also believe that they must buy and sell actively to make money in the markets. Trading too much can be compared to gambling and as you know in the case of gambling and casinos: there are two certainties: first the vast majority of players will end up losing money and second the house always comes out the winner in the end. For trading this is the same thing with just replacing the house by the broker and the players by the investors. The more often you trade the most money the broker makes and consequently the more money you lose too.

Stock investing has only one similarity with casinos. In short, we can say that stock markets are not casinos. When you play in a casino, this is what is called a zero sum game. It is even worse than that when you add that this is a zero sum game where one participant (that is the casino) is sure to be a winner. Money is taken from the losers and distributed to the casino and the winners. The notion of value is a key one here. No value has been created in the process. Value creation is any process that creates outputs that are more valuable than its inputs. We find this value creation in stock markets. When you buy a share you are buying a part of a company. If you keep your share over a long period of time and that the company is doing well, you will most certainly make money. To be successful on the stock markets you need some attributes. There are actually different ways to be successful on the markets. You can become successful by listening to the right persons even if other persons tell you much more pleasant stories (but these would be fairy tales). You can be successful on the stock markets by being patient. But one thing is certain; if you do not understands the basic rules of investing and notably the difference between casino and the stock markets there is no way for you to make money on the long term. You might actually end ending up losing a lot of money.

Disclaimer:

 

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