Investing is the act of allocating funds or committing capital to an asset, like stocks, with the expectation of generating an income or profit.
Gambling is defined as staking something on a contingency. It involves risking money on an event that has an uncertain outcome and heavily involves chance.
This article will explore similarities and difference between both activities;
Diversification: Investing provides an opportunity to spread your risk across different asset classes whereas gambling involves staking on a singular activity. In investing, you have different avenues to diversify your funds.
Common examples are stocks, real estate, Bonds, treasury bills etc. that have proven over the years the ability to generate income and provide stability or hedge against losses. In gambling, there is nothing like diversifying your assets to prevent loss of funds.
Ownership: When you invest in a company, you become a part owner of the business which is otherwise called a shareholder. Being a shareholder means you have certain rights such as invitations to shareholder meetings and the ability to vote on issues that affect the direction of the company. You may also receive dividends or special incentives to acquire more shares.
With gambling you do not own a piece of the business offering you the services, the gambling company just provides a platform for you to make your predictions and realize your gains or losses. A typical example is the betting companies in Nigeria who offer individuals an avenue to stake their money predicting sporting activities.
Tenor: Gambling is a short-lived activity, whilst investing can be for the long term. Since investing involves owning a piece of equity in a business, it is then logical to state that you are putting money aside in a venture you expect to create valuable products to people who demand for it. We all know of companies that have been in existing for more than 50-100 years and they have continuously had shareholders who have kept the baton flying through the years.
With gambling, an individual just stakes on an event that is short-lived, whether it be rolling of a dice, or punting on a horse racing activity or football match.
Analysis: The level of analysis involved in proper investment is more tedious than in gambling which can be just guessing about the outcome of an event. To analyze a stock for example, involves studying annual reports, historical performance, and competence of management amongst other things which is usually left for the experts. In gambling, there is no such thing as an expert, as anyone can make a wild guess of how a game would turn out and be lucky with it.
Availability of Information
In the investing world there is a plethora of information and data widely available to aid decision making. Some of these data even go back 100 plus years and the advent of technology has also made the real time information plausible.
In contrast, when you gamble, you typically do not have as much information to help in making a decision.
Risk of loss of funds
Both activities involve a possibility of loss of capital. No matter the amount of analysis or due diligence done before embarking on an investment, there is still a risk of a company going bankrupt or losing out to a competitor. This is also true for gambling as every gambler knows that the moment an amount is staked on an outcome, you can say the money is as good as gone.
Knowing the odds
Both investors and gamblers usually keep tabs on odds or the probability of an event occurring in order to improve their performance. Gamblers consider the odds when choosing certain games to play and can decide intuitively or by observing behavior on whether or not it makes sense. Investors also use odds when deciding, as they can also look at patterns of stock market when choosing to make certain financial decisions.