Stocks are effectively an educated, complicated, and multifaceted way of gambling. Bonds are not. The article writer sadly fails to differentiate between the two.
If you think investing is gambling, which it is I suppose for those lacking financial intelligence, then bonds, just like equity, would be just as much an educated, complicated and multifaceted way of gambling due to the major issue of
counter-party risk.
Note the "effectively". There is a difference between gambling and
effectively gambling. Perhaps gambling itself is a misnomer, as it has many negative connotations, but the principle remains the same. You are putting money into something with the hope that more will come out and the risk that it will not. Stocks are infinitely more complicated, and certainly more financially viable in most cases, but the principle remains the same.
You can define bonds as gambling if you wish, but by that definition, counter-party risk would make any financial operation involving an investment into another person or corporation "gambling", which I think most people would disagree with.
However, in this case, I think your point is perfectly valid, as counter-party risk is inherently significant in low-volume deals with oft-unknown quantities using a semi-anonymous currency. I stand corrected.
Uh-uh. The problem is that people don't think before they invest. If you have a company that owns 10 aeroplanes, and each aeroplane is 100 million dollars new, then is the company worth 1 billion? Yes and no. You have to account for the fact that each aeroplane has a 15 year lifespan and will make 15 million dollars a year for that 15 years. So, is the company worth 6 billion!? No! You have to understand how these things work, and it's complicated, but it is NOT gambling. You have to understand counterparty risk as stated above, but also things like NPV. 20 aeroplanes making 15 million dollars each is 300 million a year. But this must be discounted. Use a NPV formula. The NPV of 300 million for 20 years, at a 10% discount, is over 1.8 billion. So, if you can buy 1.8 billion for 1 billion
do you do it? The rate over 20 years will be about 3%. That is investing. You analyze, you decide to pull the trigger, and then you have to wait for 20 years.
So you see the second problem, that people buy and sell stocks on the year, month, or even day (some traders buy and sell a stock within minutes or even seconds). This is good for liquidity but very bad for your profits. You CAN try to gamble on the stock market, but in the long run, remember this:
investors always win. [edit: the problem is that they often don't win very much
]
Investing is very different from gambling.
Again,
effectively, given context and article target audience. My statement was perhaps too blanket, however.
And, as for investors always winning, I'm afraid not everyone is as lucky, or as savvy, whichever way you'd prefer to put it, as you are.
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