Have you been to a casino? Ever placed a bet in the office pool? Played some poker with your friends? Bought a lottery ticket? You know as well as I do that these are all different forms of gambling. Gambling is actually quite similar to investing. You put up a portion of money with the hope or expectation you’ll get that money back and then some.
The distinction though is really in the odds. What separates gambling from investing is that hope. When someone knowledgeable makes an investment they have an expected return. Think of CDs, they have an expected return displayed as an interest rate. For gambling, the return is just “hopeful”. Another possible distinction is that the returns on gambling are usually much higher than investments. No one would play the lottery for any return less than 100% (think buying a scratch-off ticket for $1 and winning $2). Of course the main distinction is the likelihood of getting your return. With gambling it’s quite small. But for investing, such as with a CD, you absolutely expect to get your money back plus your return.
However there are investments our there that act just like gambling. They go beyond the scope of this blog, but something like a deep out-of-the-money put option could fit many of the same descriptions of gambling.
My question to you is whether gambling is for the smart or the stupid? Many have called the lottery a tax on the poor. Some say instead that it’s a tax on people bad at math or statistics. The same could be said for all kinds of gambling. People throw away billions every year on casinos (for a cool chart on the gambliest of gamblers by country see here).
Some very smart people gamble though. New research has shown poker is very much a game of skill and it’s been known you can beat blackjack with math. Rich and sophisticated people gamble too. Just look at the Kentucky Derby. And even though some games can be one and others have odds stacked against you, people from all walks of life gamble. Simply because you might have to wear a black tie to a certain casino doesn’t make the game any more sophisticated than Powerball.
Perhaps more importantly though is the loss of money. Is gambling really that big of a deal? If you get some entertainment value out of it, how can it be any different than video games or shopping? You’re still burning through money. Sure gambling has the potential to ruin a person, but someone could waste their life away playing World of Warcraft or run up $20,000 on purses and shoes too.
So long as you’re having fun and work within some level of moderation, gambling isn’t for the dumb or the smart. It’s for anyone that can have a good time to do it. There are some dumb people that blow their social security or disability checks on lottery tickets, but these are only examples of potential problems. Everything has potential problems. So have some fun and just don’t expect to win.
Photo: shockingly tasty