Broker Check
Gambling versus Investing

Gambling versus Investing

August 17, 2023

I was flipping through the internet this morning and clicked Yahoo Finance.  Here were some of the headlines:


Seven of the Top 10 Most-Valuable Stocks are still Cheap, Analysts Says

 “The Bubble is Real”: Jeremy Grantham Warns of a Stock Market Crash

Insiders Pour $1 Million-Plus into These Two Stocks – Here’s Why You Might Want to Follow Their Footsteps

 4 Big Pharma Stocks on Sale Right Now


Then, I drive down the freeways in my city and every other billboard is an advertisement for a personal injury law firm:


We Get You More

 We Win and We Win Big

 $14,000,000 Trucking Settlement


A lot of this seems like a gambling mentality.  Hop in now.  Buy this stock and you’ll make millions.  Don’t miss out on this once in a lifetime opportunity.  Even the law firms’ billboards fail to mention that, for you to win big, you have to have something horrible happen to you, or even die.  The other part of this equation is selling fear.  We’re in a bubble and you’re going to lose all of your money if you don’t get out now.  One of my friends, Scott Brown, posted something on LinkedIn saying experts had predicted 10 out of the last 5 recessions.  So, it’s either, jump in right away with this amazing offer or get out now before you lose everything.  What’s a poor soul to do?


There is No Quick Fix


Ok, maybe there’s one.  You could win the lottery!  I looked up the odds of this happening and this is what I found.  The odds of winning one of the most popular lotteries in the United States is 1 in 176 million.  If you’re playing a single state lottery, the odds increase to 1 in 42 million.  Whew!  Got that out of the way.  Now back to reality.


Whether we’re talking about investing or working out or losing weight, there seems to be a common thread.  It usually takes time for you to achieve your goals.  Even if you invest a large, lump sum of money, it’s unlikely that it will be worth 10 times what you invested very quickly.

This past Sunday I rode my bike 56.37 miles.  We climbed 3,471 feet and averaged 15.9 miles per hour.  It took me 3 hours, 32 minutes, and 9 seconds to complete this ride.  Am I skinnier now than before I started this ride? No!  Maybe a little bit immediately after I finished but I drank a bunch of water and weighed the same the next morning.  Can I quit now?  I guess so, but not if I want to be able to ride well in my next event, The Copper Triangle.  That ride is on August 5th and it’s 80 miles with 6500 feet of climbing and goes over three 10,000+ foot mountain passes.  So, what do I do?  I took Monday as a rest day and I schedule time to work out, 4 to 5 days per week.  Then I do the same thing next week and the week after that.  Then, after I finish the event, I’ll take a couple of days off the bike then start the process all over again.  The point of this is, consistent effort over a long period of time gets results. 


What Do You Do?


People always want results yesterday.  Take a pill and you’re skinny.  Win the lottery and you’re rich.  Buy this amazing workout machine and you’ll see immediate results.  Buy this one stock, right now, and you’ll be set for life.  My first piece of advice would be to forget about all of that noise.  And it’s just noise.  Here are a couple of steps that might help.


  1. Make a Plan:  If you don’t know where you’re going, you’ll never get there.  Part of making a plan is knowing what you really want.  A lot of people have vague ideas like I want to be rich, or, I want to retire at 40.  Okay, but that’s not clear.  You need to have a clear idea of what you want to have happen in your life, then make a plan to achieve your goals.


  1. Know that it is going to take time.  Everybody wants everything yesterday.  There was a calculator in the New York Times that would show the amount of money that you would have if you made small changes in the amount that you saved or the rate of interest.  The thing I always noticed was it seemed to take around 15 years before the return on investment in a given year was more than the amount you were putting in.  I hope this makes sense.  Here’s a quick example:


Deposit:  $5000.00

Monthly Investment:  $1000.00

Rate of Return: 8%

Value of investment in year 10:  $222,600

Amount of Principal:  $137,000

Amount of Interest:  $85,600


Same inputs but looking at the value of the investment in year 15.


Value of investment in year 15:  $405,116

Amount of Principal:  $197,000

Amount of Interest:  $208,116


As you can see, in year 15 the interest on the account is finally greater than the amount invested over the years.  From here the difference grows, thus the magic of compound interest. 

  1. Don’t Blow Yourself Up!  I saw a chart the other day that showed rolling 30 year returns versus annual returns of the S&P 500.  The yearly returns were all over the place.  Some years 25%.  Some years negative returns.  Some years, there wasn’t much return at all.  But the 30-year rolling average return was pretty steady.  The lowest 30-year average return going back to 1926 was 7.8%.  The best 30-year average return was 14.8% ending in the year 1968.  The latest 30-year return through January of 2023 was 9.8%


The reason I point this out is, historically speaking you’ll get a return on the stock market between 8% to 12% or so.  The thing you can’t do is blow yourself up by getting out of the market when things inevitably go wrong.  For the last 30 years, if you had invested $10,000 at the beginning of the period in the S&P 500 and let it ride, at the end of thirty years you would have had $165,222.88.  That means your money doubled over 7 times.  But in order to get that you would have endured the crash, 9/11, the Iraq/Afghanistan wars, the Great Financial Crisis, the Ukraine war, impeachments, government shutdowns, 9% inflation and several legitimate bear market crashes.


In some ways this is scary, but if you look back at history and you tell yourself, the worst 30-year return was almost 8%, that gives me a sense of comfort that things are going to work out just fine.


In Conclusion….


Investing in the stock market is not gambling.  In gambling, when you play the game, you have a very good chance of losing.  When you gamble for a long period of time the odds are still not in your favor.  When you invest for the long term, the odds are certainly in your favor.  While there is no guarantee of success, history shows since 1926 the worst return you would have received over 30 years was 7.8% and with that rate of return your money would have doubled every 9.2 years.  I can live with those odds.


If you have any questions or want to talk about your personal situation, reach out to me HERE.  As always, thanks for reading.  KB