Are You an Investor or a Gambler?

An interesting debate arose here this week regarding the differences and similarities between investing and gambling.  This debate is largely semantic and arriving at an actual definition of investing or gambling, in my humble opinion, is almost as subjective as the meaning of happiness.

Perhaps most would agree that the primary commonality of investing and gambling is the wagering of money on an uncertain outcome; therefore, one could argue that the two words share the same general meaning with regard to the underlying respective wagering activity  [Note: Of course one may debate the differences in meaning between ‘investor’ and ‘trader’ as well but for purposes of this post, we’ll assume that traders are investors].

Differentiating between the two, whether one is an investor or a gambler, therefore, may simply be found within one’s self-perception of their motivation with regard to the wagering activity (assuming an honest self-reflection and resulting self-assessment is possible).

Personally, I like to employ the use of timeless wisdom, as opposed to conventional wisdom, for points of reference:

A given man lives a life free from boredom by gambling a small sum every day.  Give him every morning the money he might win that day, but on condition that he does not gamble, and you will make him unhappy.  It might be argued that what he wants is the entertainment of gaming and not the winnings.  Make him play then for nothing; his interest will not be fired and he will become bored, so it is not entertainment he wants.  A half-hearted entertainment, he must delude himself into imagining that he would be happy to win what he would not want as a gift if it meant giving up gambling. ~ Blaise Pascal

Blaise Pascal, who is best known for “Pascal’s Wager,” seems to suggest, and I concur, that the “entertainment of gaming” and “the winnings” are not mutually exclusive motivations of the gambler:  Take either of them away and the gambler is unhappy.

Perhaps the definition of gambler, then, might be “one who wages money on an uncertain outcome and, with regard to the particular wagering activity, is motivated both by the entertainment of gaming and the prospects of winning; but not one without the other.”

In my own personal reflection, for example, I believe I would label myself as an investor.  I say this because, if I were offered a modest rate of return, of say 8% annualized for life with no possibility of earning more (or less), I would take the offer and move on to other pursuits (that would not include gaming of any sort).  In other words, I do seek “the winnings,” which I would define as outpacing inflation by a significant margin, but I could care less about “the entertainment of gaming.”

How about you?  Do you seek entertainment from investing/trading or do you engage in this wagering activity for the winnings (or both)?  Following this exercise, you might be a gambler if you would be unhappy having only one without the other (entertainment/prospect of winnings).

What do you think?  Are you an investor or a gambler?  Why or why not?  How do you personally differentiate between the meanings of investor and gambler?

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Kent Thune is blog author of The Financial Philosopher