Betting and Investing are Both Risky: Why the Hypocrisy?
Tennessee Attorney General Herbert Slatery recently ruled that daily fantasy sports qualify as illegal gambling in the state of Tennessee. His logic was that “participants do not control how selected athletes perform in actuality on a given day.”
The irony of these words was probably not lost on investors, who also have little control over the performance of whatever stocks they choose to invest in. This leads to a rather interesting conclusion: Sports betting and stock market investing may actually be quite similar in nature.
Take a closer look at the details.
A Primer on Sports Betting
Sports betting is largely misunderstood by the general public. Despite the fact that most Americans have never had any personal experience with sports betting, the majority assume it’s a shady activity.
This is largely the result of the way lawmakers and the media tend to sensationalize extreme instances in which bettors have lost massive amounts. Which, come to think of it, happens quite often on Wall Street.
“I always wonder why it is that real estate speculation, hedge funds, and general stock market trading is accepted as reasonable while sports betting is somehow seen as notorious or untrustworthy,” says Robert Ferringo, a professional sports handicapper. “Even … just a few years after one of the largest economic crisis in recorded human history, Wall Street is still seen as a respectable place to try to make money.”
The reality is that Wall Street is a respectable place to try to make money … but then, so is sports betting. In the latter instance, people wager money on teams, athletes, and outcomes based on pre-established odds that a specific outcome will occur.
Bettors look for opportunities that are low-risk and high-reward. If they make strategic bets, they are financially rewarded. Luck certainly plays a role in sports betting, but there is plenty of strategy that goes on behind the scenes.
A Primer on Investing
Then there’s investing. Whether the investment’s in stocks, bonds, real estate, or any other imaginable commodity in between, the goal is to put your money behind an entity that you believe could well be worth more in the future than it currently is.
High rollers choose investments based on a combination of advice, research, and intuition. Much as in sports betting, the goal is to find low-risk and high-reward opportunities.
While there’s a lot of strategy behind the decision-making process, luck ultimately plays a role in the outcome. Most investors have little or no control over how an investment performs.
The Shared Characteristics of Successful Investors and Bettors
So, are sports betting and investing one and the same? Not quite. There are plenty of distinctions one may identify between them.
But it wouldn’t be entirely correct to declare that the two activities are utterly distinct from each other. In fact, there are many commonalities between them.
To give you a better idea of the similarities, think about some of the shared characteristics of successful investors and sports bettors. (The key word here is successful. There’s a large number of unsuccessful investors and bettors, and they rarely exhibit the following characteristics.)
- Risk Management Strategies
Both successful investors and bettors tend to have risk management strategies in place to maximize results. Investors will diversify their investments by identifying stocks in various industries and striving to never invest more than two to five percent of their capital base on any one trade.
Bettors do the same thing by hedging their bets to account for multiple outcomes. You can’t look at investing or betting as something that can be figured out. You’re going to win some and lose some.
The key is to diversify the risk by following a balanced strategy that allows you to accumulate steady profits without losing it all.
- The Right People
Whether you’re involved in investments or sports betting, you can’t be successful without the help of others. “A critical component of any long-term investing strategy is lining yourself up with the right people,” Ferringo says; “people that you can trust, people with proven track records of success, and people with the intelligence and capabilities to make and protect your profits.”
Investors are always reaching out to financial advisors and portfolio managers. Bettors frequently leverage the resources of handicappers. Having the right people in place allows you to establish a firm foundation and avoid making foolish mistakes.
- No Thrill Seeking
Foolish gamblers throw down money because it gives them a temporary thrill or high. Smart gamblers and investors never fork over money simply because they want or need excitement.
According to clinical psychologist Maggie Baker, the neurological similarities between stock traders and gamblers are compelling. There will always be a particular locale of the brain that lights up when a bet is placed or stock purchased.
“A trading floor isn’t that much different from a floor of a casino in that regard,” Baker says. “There is a lot of social support for addictive behavior.” The difference between successful investors and bettors and unsuccessful ones is that the former are able to suppress the thrill and ultimately prioritize logic and rationale over sensational spending.
- Willing to Take Risks
Regardless of how much research you put into an investment or wager, there’s risk attached to the outcome. According to entrepreneur Walter Bond, this is the strongest link between investors and bettors.
Now, there’s a substantial difference between a calculated risk and a foolish one, but it’s impossible to be successful in life if you aren’t willing to take on any risk at all. Sometimes you win and sometimes you lose, but you can’t enjoy the former unless you’re willing to assume the latter.
The Risk of Growing Wealth
Risk is always associated with attempting to expand wealth. There are ways to lower the risk, but whether you’re in the field of sports betting or investing, there’s no guarantee you’re going to make money.
Next time you hear someone praise stock market investing and simultaneously scoff at sports betting, ask them to explain how the two are so different. Both require strategic preparation and a healthy dose of chance … so it’s unwise to discount either.