Gambling vs. Investing (Time In the Market)

Gambling vs. Investing (Time In the Market)

February 22, 2024

It has long been regarded by some that investing in equities is ‘just like gambling’.  To the extent that each exercise comes with inherent risks of loss, then yes, one might be justified in this assertion.  I would suggest to these individuals that the biggest differentiator is the concept of: TIME. 

As one who, in a different life, spent much time in Las Vegas casinos, I can testify that spending any more time at the blackjack tables DOES NOT increase the odds of winning.  In fact, the odds are stacked in favor of the house.  Staying longer increases the odds of losing!  It is no wonder that most casinos do not have clocks or windows in their gambling areas.  They are designed so that the patrons lose track of time!  The internet and stock tracking apps have created a different experience for followers of the equity markets.  At any given second(!), we can see whether a stock or index is up or down, accentuating the emotions of the experience.

The past is littered with anecdotes of hopeful investors (or gamblers) buying the sure thing, only to be caught out by an unexpected company news report, a timely market correction or an economic or geopolitical event.  Indeed, trying to TIME THE MARKET is the closest to the gambling analogy as one could get; essentially because it implies only focusing on one sliver of time.  With equities, the risk of loss can be higher the shorter the time horizon.

October 19th, 1987 (Black Monday), The 9-11 Terrorist Attack and ensuing conflicts, The Great Recession, COVID-19 (March 2020):  All reasons, to name a few, to have been leery of the stock markets.  In each of these periods, the S&P 500 index closed the year at 656.74, 1492.17, 1317.84, and 4424.65 respectively.  And, although the lows attained during the Great Recession dipped lower than the lows during the 2001-2003 period, it took less than one year to recover. The negative effects of the COVID-19 pandemic on the U.S. equity markets lasted roughly a mere 3 months from January - March 2020, where the major market indexes dropped around 30%.  

On Friday, February 9th, 2024, the S&P500 closed at 5026.51; at that time, the highest ever close for this index that tracks the leading U.S. publicly traded companies, with a primary emphasis on market capitalization. History shows us that staying the course would have paid off as long as the individual’s time horizon allowed for riding out the volatilities. Arguably the best time to have put resources to work in the markets were after each of these exogenous events.  However, these would also have been the times when emotions were running high.  During these times of uncertainty, fear typically runs rampant.  

Throughout the investing experience, it is always wise to keep these things in check:

  • What is your investment objective?
  • What is your tolerance for risk?
    • Is your portfolio suitably allocated?
  • What is your time horizon?

Call us today to discuss these and other investment strategies.