The Link Between Gambling and Investing

Posted by Harry Kane on Wednesday, July 25, 2018

At first glance, there may appear to be little that binds the stock market or the foreign exchange or the typical casino. After all, while investors tend to take on calculated risks in pursuit of viable gains, gamblers often spend their money on games of chance over which they have little or minimal control.

If you delve a little deeper, however, you see that the link between investment and gambling is a little more intrinsic, and one that betrays a number of subtle but ultimately undeniable similarities.

This was true even before the digital age, but there’s no doubt that the digitalisation of the financial marketplace and gambling industry has blurred the lines even further. During this time, the stock market has increasingly come to resemble a capitalist casino, where gambling and speculation masquerades as investment and strategic wealth building.

In this article, we’ll explore the inextricable ideological link between investment and gambling in further detail, while asking how these two practices have become increasingly aligned in the digital age.

Risk, Choice and Ideology – Comparing Investment and Gambling

Even from an ideological perspective, it’s hard to separate the individual practices of investment and gambling. After all, both of these entities involve the relentless pursuit of financial gain, by committing an initial stake and looking to increase this and achieve a desired return.

The size of the return that you chase and the vehicle that you use to achieve this will vary wildly across both markets, of course, with both investing and gambling driven by risk and choice.

Whether you’re a gambler of or an investor, your journey begins by determining how much of your bankroll or capital that you want to risk. In the case of the latter, investors will often spend between 2% and 5% of their capital base on individual trades, while looking to distribute spend across a diverse range of asset classes. This represents a basic risk management strategy, and one that is designed to regulate your total spend and minimise any potential losses (we’ll explore this in further detail later in the piece).

A similar principle can be applied to gamblers, particularly those who class themselves as professionals and aspire to achieve frequent wins. More specifically, gamblers must choose how much of their bankroll they want to put in play, with so-called pot odds often used to address the balance between capital risk and potential rewards. These odds will also be influenced by the house edge associated with your chosen game, which in turn the likelihood that you will win each specific hand or spin.

We’ve already touched on how investors will often look to strategically distribute their capital spend among a diverse range of assets, and gamblers apply similar logic when looking to optimise their bankroll during individual games. This is particularly relevant to poker, blackjack and roulette players, who can often use their bankroll to underpin an effective risk management and gameplay strategy.

In the case of blackjack and roulette, for example, players often deploy so-called betting systems, which impacts directly on the amounts that they stake per hand (or spin) and the nature of the risk that they incur. These are often described as either negative or positive progression strategies, with each requiring players to initially set a betting unit value depending on their total bankroll and outlet.

In the case of negative progression systems, players will increase their stake by a multiple of their betting unit every time that they lose. In theory, this builds the available pot and optimises the value of any potential win, delivering larger returns on their total stake. Typically, this type of betting system carries a more ambitious risk profile, while it is also suited to players with larger bankrolls and financial resources.

Conversely, positive progression systems demand that players increase their stake with every single win. This is a more risk-averse approaches that minimises the amount of money spent in the pursuit of wins, while it is also designed to capitalise on favourable conditions and winning sequences. The flip-side here is that the value of each win is likely to be relatively small, although once again this will be determined by your stake value and the nature of each success.

In roulette, gamblers also follow one of the first rules of investment when placing their bets. To be precise, they’ll often look to cover as much of the wheel as possible with their stake, combining a variety of outside bets that pay-out at odds of between 1/1 and 2/1. Placing column or dozen wagers can cover up to 12 numbers at a time, for example, while backing red, black, odd or even also encompasses half of the wheel.

This is similar to how investors look to spread their capital across a diverse range of interests, in order to minimise risk and optimise their chances of winning. Those with a greater appetite for risk can also include inside bets such as single numbers in their system, as this increases the potential return without dramatically undermining your chances of winning.

Spread Betting and Speculation – The Face of Modern Investment

The impact of technological advancement on both investing and gambling has been significant in recent times, while it has also created an even greater sense of familiarity between these two pastimes.

From an investment perspective, this not only applies to the range of asset classes available, but also the methodology used by traders to achieve a return.

To understand this further, we need to look at sports betting and the investment vehicles often used by modern investors. When gamblers place a sports bet, for example, they are speculating on a specific outcome from one of two potential options by determining who will win or lose a particular game. This is a simplified wager that will present variable odds to gamblers, and while there are a range of additional markets that can complicate such a bet while increasing the odds available to punters.

In a similar vein, online stock and forex traders are increasingly likely to leverage the spread betting technique to speculate on the performance of alternative assets and different currency pairings. Unlike with traditional investment methods, which require traders to assume ownership of an underlying financial instrument, spread betting allows them to speculate whether or not their chosen asset will increase or depreciate in value within a specified period of time.

As a result, it’s possible for investors to generate a return even in a depreciating marketplace, and irrespective of the prevailing conditions. The only difference here is that the margin-based nature of spread betting can force investors to lose more than their initial commitment, whereas those who indulge in sports betting will only ever risk their stake regardless of their wager.

In many ways, spread betting highlights the speculative nature of modern investment, and the unique synergy that exists between financial market trading and gambling. It has certainly blurred the lines between investment and gambling, diversifying the former and adding credibility to the latter in the process.

How an Investor Mindset can help Gamblers

Despite these subtle but increasingly relevant similarities, however, there remain significant differences between investment and gambling. Many of these offer core benefits to investors, particularly those who like to put their money into tangible sources of wealth such as stocks and gold.

By understanding these nuances and developing an investor mindset, however, there’s no reason why gamblers cannot profit while implementing even more stringent risk management measures.

For example, one of the main differences between investing and gambling is the wealth of information that exists in relation to the former, particularly in the digital realm. From historical price data and real-time information pertaining stocks and trends, there’s ample opportunity for investors to appraise their options in detail before executing orders.

The nature of most gambling pastimes (and particularly games of chance) does not allow for this, however, as it would be a gambler’s fallacy to seek out patterns in randomly generated results and use this to predict future outcomes.

This does not mean that online gamblers cannot utilise a similar mindset to achieve their aims, however, particularly when playing games like video poker. After all, this discipline enables players to browse data relating to their opponents previous games, enabling seasoned pros to determine their rivals’ core strategies and how they’re likely to play against them.

As a result, it’s possible to tailor your own playing strategies to optimise your chances of success during individual games, mitigating the risk of potential loss in the first place.

On a similar note, you may also create your own data and analyse this to achieve success when playing poker. Recording and analysing individual hands offers a relevant case in point, although this requires attention to detail and a desire to ruthlessly exploit weaknesses in your opponents’ strategy.

The key is to target specific hands and determine how your opponents react in different scenarios, using this is a guideline to inform your own strategy. You may decide to bluff more aggressively on the turn against a risk averse player, for example, while adapting accordingly when such an opponent decides to bet heavily on individual hands.

Even in games like blackjack and roulette, you can utilise standard probability data to inform your decisions and adapt your approach during live tournament play. After all, it’s possible to learn the precise odds of every starting hand in games such as blackjack, depending on the number of decks in play and the actions taken by the dealer.

This creates live odds that you can keep in mind as you play, as you look to strike the balance between risk and reward and safeguard your bankroll. Such knowledge can be learned and applied over time, and while it may represent a time-intensive process it can deliver significant rewards when playing both on and offline.

Some may also argue that it’s an ownership mindset that separates gamblers from investors, although this depends on some degree to the type of asset classes that individuals like to back. It certainly applies to investors who like to target secure stores of wealth like stocks or gold, as they’ll be required to assume ownership of the underlying financial instruments.

This creates a strong ownership mindset, which in turn encourages investors to take considerable care of their assets and the decisions that they make when trading them on the financial market.

The same cannot usually be said for gamblers, who generate their income through the strategies that they deploy and a keen sense of opportunism rather than the individual hands or spins that determine outcomes. In this respect, gamblers focus on either mitigating risk or maximising returns depending on their outlook, while utilising strategies that can generate frequent wins regardless of individual results.

In games such as poker and blackjack, however, developing an ownership mindset and taking greater care of your hands represents quite an effective strategy. This can certainly help you to recognise the value of potentially lucrative hands, and take actionable steps towards translating these into sizeable wins.

Above all else, this type of approach encourages thoughtful and responsible play, which tends to deliver more sustainable return over a prolonged period of time.

The Last Word

As we can see, there remains an inextricable link between investing and gambling, while the lines between these two practices have become increasingly blurred in the digital age.

By recognising the subtle differences that exist between these two disciplines and leveraging these to cultivate a comprehensive investor mindset, however, it’s arguable that gamblers can become more effective in their approach and generate more frequent wins.

This is an important consideration, as while the ideological links that connect investors and gamblers may be intriguing, it’s the core differences between these two pastimes that provide genuine opportunities to learn and develop superior strategies.

This is probably true with most things, of course, but it seems particularly relevant to gamblers in the digital age. It’s certainly important to leverage data to your advantage as an online gambler, and this will only become more crucial as the range and quality of information available continues to grow.