One-Armed Investing?

Is investing just gambling?

Slot machines at Las Vegas airport. Photo: Yamaguchi. Source: Wikimedia.

They sure seem to have a lot in common. When folks have paid for all the goods and services they need, they may use what’s left over to express their opinion. In the investing world, they buy stocks or bonds or a derivative, like ETFs or mutual funds. In the gambling world, they go to a casino or buy a ticket at the racetrack or take a position on a sports team.

Most sports betting is just recreation – a way for fans to show their team spirit and have a little fun. And the coming Super Bowl will turn America into a giant sports book. Last year Nevada bookies registered more than $100 million in Super Bowl bets – and kept over $7 million for themselves. Bookies describe their job similarly to stock-brokers: a little math, a lot of gut feel, and a premium on customer service.

But the Nevada sports book is a zero-sum game: for every winner, there’s a loser. Actually, it’s a negative-sum game: the bookies’ take a 10% cut. No expansion team ever raised capital by setting up an over-under line at the Wynn Las Vegas. For all its hype, our $400 billion sports-betting business is just part of the global entertainment industry that grows as our leisure time increases.

By contrast, capital markets are a positive-sum game. When new businesses go public they raise money to expand, and a public stock price allows them to offer long-term incentives to thousands of key employees. Also, public markets for stocks and bonds allow investors to get our money out of these investments if we need it for any reason. There’s a reason why healthy capital markets are an important part of a healthy economy.

Still, the thrill from a winning an NCAA bracket or a Super Bowl bet can feel like a double in the stock market. In both cases “you pays your money and you takes your chances.”

Douglas R. Tengdin, CFA

Charter Trust Company

“The Best Trust Company in New England”

By |2019-01-14T06:56:21-04:00January 14th, 2019|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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