Sometimes I hear investors, experienced and novice both, refer to stock market investing as ‘adult gambling’.
While a bit strange and redundant considering you must be an adult to legally gamble, I understand the sentiment.
The stock market is a bit abstract. Lots of very foundational concepts get assumed – i.e. how and why did it start? How did it become so big and instrumental? The stock market can make you feel small, out of control, and just along for the ride. We tend to just blow past all of this and tell people to max out their 401(k).
Compare this to, say, real estate investing: tangible and the use case easier to understand. People and businesses need roofs over their heads. Not only that – master a handful of arithmetic problems and you can solve for positive cash flow quite easily.
So, I say this not because I agree with likening the stock market to gambling, but because I understand the emotion.
The greatest distinction between the stock market and gambling isn’t just some philosophical rant, either. Understanding the wager at stake with stock market investing will provide the initiative and resiliency that every single investor needs. No one is completely immune to moments of paralysis and worry.
Gambling has nothing to do with the hope and expectation of human progress. Choosing a parlay, picking an over/under, and betting on black have nothing to do with expecting that this is all moving towards something even better.
Investing has everything to do with hope. Otherwise, why invest at all? With investing, we’re choosing to believe in long-term human progress and ingenuity. That big tech isn’t just after our personal data or prefers robots to humans. Insert any geo-political concern you have here, too. Instead, maybe ingenuity nearly always has an order, disorder, reorder pattern.
To be sure, there are always reasons to fear the imminent future. There is now and always will be. There will always be a reason to say, “this time is different”. I acknowledge and accept this concern.
Just a short pause and reflection on the centuries of war, famine, disease, corrupt governments are enough to bring you to your knees.
Yet, we always rebound. Over the course of time, our will to not only survive, but thrive, has won out.
Now, I also see the retiree without the time horizon I’m speaking of rolling their eyes a bit. Also noted.
This is why, on the practical level, I’m an advocate of maintaining enough in cash and/or fixed income to support the bad years of market performance that you will inevitably face. Being forced into equity sell-off to support your lifestyle during market down turns is not desirable. But, there are ways to plan for this, as just mentioned.
At some point, we’re left with no option. If you do not choose that human progress is the way, all the while accepting periods of time that will be uncomfortable and thus paving the way for something better and new, then you are choosing some degree of hopelessness. You will become crusty and cynical.
We’re not at the casino. We’re choosing a leap of faith. And, that’s investing.
Thanks for reading.