Investing & Gambling: Why Investing Is Never Like Gambling?


For the past three years, I’ve been trading on the Nepalese exchange. What irritates me is that I often hear from other stock as well as outsiders that investing in stocks is similar to gambling. I’ve remained silent and never attempted to address them. It is an unacceptable comment for a prudent investor. People also equate trading to gambling as they begin to lose money after the market has plummeted. Nervous and discouraged investors in the Nepalese stock market are making similar comments as a result of the market’s downturn.

“During a bull market, was the safest way for investors to make money, but their view of the market shifted dramatically when the Nepse fell to a low of 1118.13 after hitting a peak value of 1881.45.”

Let me describe our market’s overall scenario. As the Nepalese stock market hit a new high of 1881.45 points in 2016, several new entrants (as share investors) selected stocks at random at a high price. “Housewives are also drawn to investing in shares and are able to make a fair amount of profit by trading in their spare time,” according to one optimistic news headline. The market was gaining positive momentum, and market expectations were being guided by the belief that any stock would perform well. Many newcomers profited during a bull market, prompting them to spend even more in the hope of making even more money.

The story then took an unexpected turn. The economy began to act strangely, and people began to lose money on their savings. The situation gradually changed, and Nepse fell from a high of 1118.13 points to a record low of 1118.13 points after its height. Nepse by about 40% in two and a half years, signaling a significant market crash. Those investors who were overconfident in the stock market and their stock selections have now realized that the stock market is nothing more than a gambling ground.

“If you make rash investment decisions based solely on the likelihood that my stock price will rise as the market rises, you are essentially gambling. Investing decisions, unlike gambling, must be based on knowledge.”

So, in general, what I want to convey to beginners or those considering entering the market in the future is the importance of prudent investing. What I mean by sensible investing is that you should conduct fundamental analysis of the business before picking your stocks, which involves looking at important financial ratios including debt/equity ratio, earnings per share, price-earnings ratio, net worth per share, and so on. Technical aspects such as 52-week highs and lows, price-volume analysis, and moving average can also be used to market movements before investing. “When the market was in a bullish cycle, the bear market was supposed to follow, but no one predicted it would happen so quickly. We may also argue that the current bear market is caused by low GDP growth, rising interest rates, political instability, and a lack of sound monetary policies, other factors.”

Stock trading can seem to be similar to gambling due to its risk-reward strategy, but unlike gambling, the future is not completely unpredictable in stock trading. Gambling is a zero-sum game, meaning that one player wins and the other loses. In investing, however, anyone does not have to fail in order for you to benefit. As an investor, you will believe that the market price of the stock in which you invested your money determines your destiny. This is not the case if you know how to read the business. If the stock market drops in value, your net worth will drop temporarily. However, you will have the choice of sticking to your savings and waiting for better times. You should also be aware that you did not wager on the stock’s current market price. You put your money into the corporation the owns that stock.

The business has real assets and profits, as well as the potential to grow in value over time. The stock price will grow in tandem with the company’s stature and valuation, and you will be compensated for your savings, even though it takes a long time. There could be some temporary setbacks in your investment career if you research the business and do your homework before buying any stocks, but you will do well in the long run.

“With strong fundamentals, Nepal Investment Bank (NIB) and Nepal Telecom Corporation (NTC) have demonstrated stability during this bull-bear era. As a leading commercial bank, NIB has consistently paid out generous dividends (40 percent and more in the last three years). After July 2016, the company’s market capitalization has by 16 percent during the observation period. Similarly, NTC stocks were common in many portfolios during this period. Despite the market’s decline, the net worth of NTC investors increased by 13%. These stocks have held up well during the recent market downturn, with Nepse down more than 40%.”

So, invest in companies with strong financial potential and keep informed about the industry. They will almost certainly pay you good dividends and grow in value over time. Since market behavior is beyond your control and impossible to predict with certainty, having good companies in your portfolio will help you relax and be patient even when things don’t go your way. Your portfolio will undoubtedly have strong returns once the market resumes its bullish trend, and you will be rewarded for your patience. Never consider the stock market to be a venue for gambling, and base your investment decisions entirely on chance. The market’s direction, whether bullish or bearish, can never be predicted with 100% certainty.

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