Friday, June 18, 2021
Gambling vs. Investing
I live in Belgium. As a consequence of that, there are certain games in which I am barred from buying loot boxes, as these are considered as illegal gambling here. On the other hand, there are absolutely no laws over here that would prevent me from buying Bitcoin, or shares of Gamestop. So I guess that some people are not very clear about what the difference between gambling and investing is.
Investing has to do with forecasting the future value of an asset. You might argue that nobody can foresee the future. But to some extent you can make intelligent forecasts based on current events. For example Amazon shares were at $1785 on March 13, 2020, when the first COVID wave started to move markets. If you had been clever at that point in time and made the link between people in lockdown and online shopping, you could have doubled your money in a few months. That would have been a better investment than let's say in a company running cruise ships. And the evolution of these share prices wasn't totally random, there are real world factors underlying it.
In gambling, you just rely on luck. Like the content of loot boxes, the future value of Bitcoin or meme stocks has very little to do with real world values. If a tweet from Elon Musk can wipe out your assets, you are involved in gambling, not investing. The directors of Gamestop are selling their shares, because they know that the current market capitalization of 16 B$ massively overvalues the real world value of their company.
I'm not saying you shouldn't be gambling. The future value of things like Bitcoin or Gamestop shares is based on irrational factors, and yes, that means you could be making money that way. Or you could lose your shirt. Personally I am not much of a gambler, and the few times in my life where I felt like gambling I preferred casinos to cryptocurrency. The "gambling-like" assets you can buy tend to be more volatile than shares in brick-and-mortar companies. There is currently a not insignificant risk that these assets will take a massive hit if inflation turns out to be less temporary than the Fed claims. But they could also double in value next month for no real reason.
The important thing is that you realize what you are doing, gambling or investing. Are you risking money you can afford to lose? Or is it the difference between spending your retirement in comfort vs. having to work as a greeter in Walmart for minimum salary until you're 80? The reasonable thing to do is to invest the money you rely upon for your future more conservatively, and gamble only less significant amounts of money. With the money you'd be happy to buy loot boxes for, you might as well buy Bitcoin.