Is stocks like gambling?

[servus_Mariae]

Would it be immoral to earn money by investing in stocks? Would it be a sin? or not a good idea?

 

[Neil_Anthony]

I know just enough economics and just enough theology to be dangerous, but here are some ideas:

1. Buying stock is (at least in theory) investing in a business. Business investment is good because it helps the economy and provides jobs, and its fair to receive profit for the use of your money to keep the business in existence.
2. Making money through speculation was condemned in Pope Benedict’s recent encyclical. I think the point being that spending your time speculating and moving your money around doesn’t really do much good for the economy - so you’re making money without actually earning it by providing something to others.
3. Investing can be risky, and you have to be careful about risking money you need to support your family.

 

[bobzills]

1. Making money through speculation was condemned in Pope Benedict’s recent encyclical. I think the point being that spending your time speculating and moving your money around doesn’t really do much good for the economy - so you’re making money without actually earning it by providing something to others…

Do you have the exact quote for the encyclical ?
Also, if you are moving yuour money around in various markets, you are actually providing liquidity to the markets and this can be of some value to society at large.

 

[Neil_Anthony]

Do you have the exact quote for the encyclical ?
Also, if you are moving yuour money around in various markets, you are actually providing liquidity to the markets and this can be of some value to society at large.

from section 40

What should be avoided is a speculative use of financial resources that yields to the temptation of seeking only short-term profit, without regard for the long-term sustainability of the enterprise, its benefit to the real economy and attention to the advancement, in suitable and appropriate ways, of further economic initiatives in countries in need of development.

It looks like it wasn’t a complete condemnation of speculation… I read a summary that misled me into thinking he had condemned all speculation. Sorry!

 

[WillieWonka]

I know just enough economics and just enough theology to be dangerous, but here are some ideas:

1. Buying stock is (at least in theory) investing in a business. Business investment is good because it helps the economy and provides jobs, and its fair to receive profit for the use of your money to keep the business in existence.
2. Making money through speculation was condemned in Pope Benedict’s recent encyclical. I think the point being that spending your time speculating and moving your money around doesn’t really do much good for the economy - so you’re making money without actually earning it by providing something to others.
3. Investing can be risky, and you have to be careful about risking money you need to support your family.

I’m not sure about that condemnation of speculating. I didn’t see that in the encyclical. I’d be very interested in seeing just where he said that.

But, let’s consider the speculator. Markets need liquidity. That means the number of buyers and sellers at any time has to be sufficient that one can enter the market and either buy or sell.

If there are no buyers, then the seller must offer his goods at a lower and lower price. If there are no sellers, then the buyer has to bid more and more to get what he wants.

There is no reason to presume the actual producers and consumers of goods will want to buy and sell at the same time. This is where the speculators provide liquidity. They will buy from the producer, hold the item and sell to the consumer. Likewise, they will sell to the consumer, then get the item from the producer.

History shows over and over that markets without liquidity are subject to abrupt and sudden swings in prices. For most of history, grain prices fell through the floor at harvest, giving the producer very little. Then they increased all through the year, hitting a peak just before the next harvest. Throw in weather, and the markets were a mess.

That’s why futures markets were developed. they provide the liquidity to stabilze the market. Markets may trend, but they no longer jerk back and forth as they once did.

Speculators also allow producers and consumers to avoid risk. The speculator assumes the risk of holding the position.

 

[bobzills]

Speculators also allow producers and consumers to avoid risk. The speculator assumes the risk of holding the position.

And as you have pointed out, spculation can add liquidity to the market. So it is not to be condemned at all.

 

[DebChris]

I know just enough economics and just enough theology to be dangerous, but here are some ideas:

1. Buying stock is (at least in theory) investing in a business. Business investment is good because it helps the economy and provides jobs, and its fair to receive profit for the use of your money to keep the business in existence.
2. Making money through speculation was condemned in Pope Benedict’s recent encyclical. I think the point being that spending your time speculating and moving your money around doesn’t really do much good for the economy - so you’re making money without actually earning it by providing something to others.
3. Investing can be risky, and you have to be careful about risking money you need to support your family.

Advice I received from an investment firm when I suddenly found myself with money.
Checking the Wall Street Journal daily and then buying/selling based on these results is like betting on horses.

Ups and downs in the market are to be expected. Holding for the long term pays off in the long run. Returns are greater than if you simply put your money in a savings account where the interest may be less than the inflation rate.

Read the gospel story of the Talents in which the stewards who doubled their master’s money were rewarded. We are called to be stewards of the gifts, financial and otherwise that we have received.

Think about investing in stock as you would a retirement plan. Do you have a 401K plan?
Tip (from the aforementioned investment manager) regarding how much to invest. This is based on present age subtracted from 100. The younger you are the greater the risk you can take, since there is a possibility of losing money in the stock market, even if historically those who invest earn more than those who don’t.
Pay yourself first. A common recommendation is 10% of your income after giving the first 10% to the Lord. Whatever your age, put that percentage of your savings in regular bank account from which you can withdraw in an emergency. Invest the rest in stocks or mutual funds. In other words, if you are 20 years old, you put 2% of your income into a regular savings account. Invest 8% in a stock or mutual fund in which you are comfortable. If you are 50, then you want to split your savings and investment equally at 5% each. Of course, research the company. Do they have a product and marketing plan in which you would like to invest, in which you anticipate success?
Again, speculating in the stock market is like gambling. Investing for the long term is not.

 

[Bluegoat]

And as you have pointed out, spculation can add liquidity to the market. So it is not to be condemned at all.

I think the risk with speculation is that the person doing it is trying to make money grow without doing any real work - making fertile what is by nature infertile. (That’s why in The Divine Comedy, Dante put the usurers in hell with the homosexuals - he saw their mistake as complimentary.)

The short term focus of our economic system is a real problem, one that is not good, really for anyone, though some people get rich off of it. What is “the market” really? What actual thing does it represent? To what degree does it assign value to things that don’t exist? Are the “forces” that govern it really spiritually things we want to throw in our lot with?

As well, any Catholic or Christian would want to be very careful what he invested in. That might be hard if you were moving your money around much.

Also, for some people, investing might be just like gambling, psychologically. They might do it for just the same reasons, and those people should avoid it.

 

[WillieWonka]

I think the risk with speculation is that the person doing it is trying to make money grow without doing any real work - making fertile what is by nature infertile. (That’s why in The Divine Comedy, Dante put the usurers in hell with the homosexuals - he saw their mistake as complimentary.)

The short term focus of our economic system is a real problem, one that is not good, really for anyone, though some people get rich off of it. What is “the market” really? What actual thing does it represent? To what degree does it assign value to things that don’t exist? Are the “forces” that govern it really spiritually things we want to throw in our lot with?

As well, any Catholic or Christian would want to be very careful what he invested in. That might be hard if you were moving your money around much.

Also, for some people, investing might be just like gambling, psychologically. They might do it for just the same reasons, and those people should avoid it.

The speculator does a great deal of work in studying the markets. He also faces losses. The economic service he provides is essential and of great value to other market paticipants.

For example, if it is June and the farmer sees the September futures price of corn is $6.00 he might see that $6.00 coversall his costs and will give him agood profit for his efforts. So, he can sell his entire crop three months before he even harvests it. He sells it all at $6.00 per bushel.

Who do you think buys it from him? It is a speculator. The speculator assumes the risk the farmer freely chooses to pass off. If the price in September is $4.00, it is the speculator, not the farmer who taks the loss. The farmer gets $6.00 even when the price is $4.00.

Likewise, if the price is $8.00 in September, the speculator makes a $2.00 profit, and the farmer gets $6.00. Note it is the decision of the farmer to sell at $6.00.

Is there anything wrong with buying a house for $100,000, and selling it in two years for $150,000? What’s the effort?

 

[cthulhubryan]

Would it be immoral to earn money by investing in stocks? Would it be a sin? or not a good idea?

It is like gambling in that you can lose. However, if you are taking reasonable care to invest only with money you can reasonably afford to risk. Invest in a business you at least somewhat understand and are willing to stay with for the long term and does not conflict with you morals then I think you are generally okay.

If I really enjoy board games and I invest in Hasbro and leave the money there for 5 years and make a nice profit, that is investing and is moral.

If I hear on the news that a new wave of AIDS is coming and I invest in a company whose only business is making condoms, then we move into the area of sin or near opportunity of sin.

Remember that by investing in a company you are de facto supporting that company. If you believe that artificial contraception is a sin why would you invest (support) the makers of condoms?

Immoral investing can lead to scandal or worse.

My :twocents:

Bryan

 

[mdgspencer]

Not only is investing morally justifiable, but it is essential for many people’s well being. Without investing, a person may find when he wants to retire (or has already retired) that he does not have enough money to live on. If inflation increased by 3% a year and the person leaves his savings in a savings account with less than 3% interest his saving will lose value every year. It is very likely too when the market recovers, that inflation will greatly increase to much more than 3%. if you invest, you can more than keep up with inflation in the long run. What to invest in is another question.
Investing can be important for other things too, such as paying for your children’s college, and for other matters when you may need a good amount of money suddenly.
One time I used my investments to pay for a top lawyer for a relative in great trouble.

 

[Bluegoat]

The speculator does a great deal of work in studying the markets. He also faces losses. The economic service he provides is essential and of great value to other market paticipants.

For example, if it is June and the farmer sees the September futures price of corn is $6.00 he might see that $6.00 coversall his costs and will give him agood profit for his efforts. So, he can sell his entire crop three months before he even harvests it. He sells it all at $6.00 per bushel.

Who do you think buys it from him? It is a speculator. The speculator assumes the risk the farmer freely chooses to pass off. If the price in September is $4.00, it is the speculator, not the farmer who taks the loss. The farmer gets $6.00 even when the price is $4.00.

Likewise, if the price is $8.00 in September, the speculator makes a $2.00 profit, and the farmer gets $6.00. Note it is the decision of the farmer to sell at $6.00.

Is there anything wrong with buying a house for $100,000, and selling it in two years for $150,000? What’s the effort?

Farming is, I agree, a very excellent example. And we can see that the economics of our farming system in North America has been great for farmers, for food security, and the environment!

Or perhaps not? Farmers are not in great shape - the ones doing best are giant corporations that have inherent problems with their methods of production that we all suffer from, or very small specialty farmers who sell directly to customers. Why do you think that is?

 

[HereticAmI]

To counter the farming example, the price of oil went through the roof owing to rampant speculation in the market for spot oil. As you can imagine, the poor of the world paid through the teeth for the speculative ramp up in the price of oil. This discussion otherwise reminds me of the commentary note in the one bible version re not lending money at interest. The note claimed that the prohibition on lending money at interest doesn’t apply now since the Hebrews lived in an agrarian economy while we live in the modern commercial state [as if God couldn’t have forseen the change in economy and fashioned a rule accordingly]. Lastly, the liquidity argument is weak in the extreme. The argument assumes that our economic system is the only reasonable and right system. That assumption is false. There is nothing sacred or holy in free market capitalism. It is simply free market capitalism.

 

[Bluegoat]

The argument assumes that our economic system is the only reasonable and right system. That assumption is false. There is nothing sacred or holy in free market capitalism. It is simply free market capitalism.

Yes, this!

Why is it that in discussions like this, the assumption is that the way it is is the only, or best way?

 

[fktw]

Would it be immoral to earn money by investing in stocks? Would it be a sin? or not a good idea?

First off, let’s look at the title of this thread…investing in stocks is NOT like gambling. Investing in stocks is more like investing in a company than throwing a dice. It is similar to investing in your brother’s business by giving him some of your life savings and buying a share of his company. Investing is not a game of chance (if properly done).

And even if investing in stocks is like gambling, gambling in and of itself is not evil. I did not make this up myself…check out CCC 2413, quoted here:

CCC 2413 “Games of chance (card games, etc.) or wagers are not in themselves contrary to justice. They become morally unacceptable when they deprive someone of what is necessary to provide for his needs and those of others. The passion for gambling risks becoming an enslavement. Unfair wagers and cheating at games constitute grave matter, unless the damage inflicted is so slight that the one who suffers it cannot reasonably consider it significant.”

Investing in stocks is morally acceptable and may be even better than in mutual funds because you are able to do research in the company you’re buying and be able to determine if its business is contrary to your moral standards.

Anyway, I have recently started a blog with a Catholic perspective on investing. If you’d like, please check it out: catholicinvestor.blogspot.com

Hope this helps!

In Christ,
Felix

 

[nsper7]

To counter the farming example, the price of oil went through the roof owing to rampant speculation in the market for spot oil. As you can imagine, the poor of the world paid through the teeth for the speculative ramp up in the price of oil. This discussion otherwise reminds me of the commentary note in the one bible version re not lending money at interest. The note claimed that the prohibition on lending money at interest doesn’t apply now since the Hebrews lived in an agrarian economy while we live in the modern commercial state [as if God couldn’t have forseen the change in economy and fashioned a rule accordingly]. Lastly, the liquidity argument is weak in the extreme. The argument assumes that our economic system is the only reasonable and right system. That assumption is false. There is nothing sacred or holy in free market capitalism. It is simply free market capitalism.

1. According to the Catholic Encyclopedia, the Church does not expressly forbid lending money at interest at all times.
2. Regardless of whether capitalism is a better or worse system, it is the current system in the United States (my country of origin and residence). Also, the Church has condemned Communism, although there are economic systems between the extremes of Capitalism and Communism that the Church tolerates.

 

[otjm]

Investing in the stock market can be like gambling if one does not understand how to invest - which includes how to sell, as well as how to buy.

If one is going to invest, then before one gets into the market, one should learn what the terms “position sizing” and "stop loss"mean, and how to employ them.

Day trading, more than anything, proves true the statement that “a fool and his money are soon parted”.

Swing trading is for a longer time span - several days to a week or maybe two, and requires the use of charting software, and an understanding particularly of, say, candlestick charting. It also requires that one is spending an hour or two each day to track what is going on, look for more buys, makes sell decisions…

Position trading is buying and holding onto stock for more than a few weeks to maybe as much as a year. Done properly, it takes several hours a week.

Buy and hold - the strategy of our grandparents - now goes by a number of names: buy and die; buy and cry; buy and fold… it presumes that the market overall will go up, and that stocks over a long period of time will appreciate enough to justify the swings downward.

Buy and hold - with Enron (my stepfather had a broker who practiced “buy and hold” and he lost better than $250,000 in that free fall); anyone who had to cash out 6 months ago and had played buy and hold with GM, just to pick one blue chip, or one of the banks or stock brokerages that went into free fall - any one of these should be sufficient evidence that “buy and hold” is no longer an advisable strategy.

Before one purchases a stock, one needs to have a clear and irrevocable plan of how and where one is going to sell the stock, and then stick to that.

There is a growing field of study in economics which is focusing on the emotional aspect of how people make financial decisions. It is not pretty - people avoid risk when they are making money (the stock is going up, so they sell it at a small profit, because of fear of losing the gain) and they take risk when they are losing (they hold onto a stock that is plummeting in the hopes it will come back up - can you say Enron?). In other words, emotionally people do just the opposite of what they should do.

And if one does not want to get involved in the decidion process, one might be better off buying an exchange traded fund than a mutual fund, as the costs of the fund (ETF) are far lower than mutual funds.

 

[mchale]

First off, let’s look at the title of this thread…investing in stocks is NOT like gambling. Investing in stocks is more like investing in a company than throwing a dice. It is similar to investing in your brother’s business by giving him some of your life savings and buying a share of his company. Investing is not a game of chance (if properly done).

With respect, there is always an element of chance when investing in stocks. Even the best investors will occasionally have stocks that loose value. If there was no risk, everyone could just invest all of their money and live off of the dividends.

So investing is like gambling… but it is not like most gambling. Most gambling that people do in casinos, slot machines, roulette, blackjack (assuming you aren’t counting cards), etc. really are driven primarily by chance – there is no significant skill or information that you can bring to the game that will make a fundamental difference in the outcome.

Investing is more like poker or betting on horses. Properly analyizing the situation and making the correct decisions (assuming you have the right skill and temprament) will generally result, over time, in making more money than you loose. However, there is always a chance you will loose.

And even if investing in stocks is like gambling, gambling in and of itself is not evil. I did not make this up myself…check out CCC 2413, quoted here:

CCC 2413 “Games of chance (card games, etc.) or wagers are not in themselves contrary to justice. They become morally unacceptable when they deprive someone of what is necessary to provide for his needs and those of others. The passion for gambling risks becoming an enslavement. Unfair wagers and cheating at games constitute grave matter, unless the damage inflicted is so slight that the one who suffers it cannot reasonably consider it significant.”

The CC’s point is well taken, and probably can be applied equally to investing in individual stocks.

Investing in stocks is morally acceptable and may be even better than in mutual funds because you are able to do research in the company you’re buying and be able to determine if its business is contrary to your moral standards.

And this is an excellent point. While a mutal fund makes investing easy and relatively safe (As our current market shows, there is no such thing as a safe investment), you generally have no way of knowing how much of your investment is supporting companies that act in immoral ways.

–
Bill

 

[Texas_Roofer]

The speculator does a great deal of work in studying the markets. He also faces losses. The economic service he provides is essential and of great value to other market paticipants.

For example, if it is June and the farmer sees the September futures price of corn is $6.00 he might see that $6.00 coversall his costs and will give him agood profit for his efforts. So, he can sell his entire crop three months before he even harvests it. He sells it all at $6.00 per bushel.

Who do you think buys it from him? It is a speculator. The speculator assumes the risk the farmer freely chooses to pass off. If the price in September is $4.00, it is the speculator, not the farmer who taks the loss. The farmer gets $6.00 even when the price is $4.00.

Likewise, if the price is $8.00 in September, the speculator makes a $2.00 profit, and the farmer gets $6.00. Note it is the decision of the farmer to sell at $6.00.

Is there anything wrong with buying a house for $100,000, and selling it in two years for $150,000? What’s the effort?

There seems to be a lot of assumptions here 1) Often speculators do not pay. This is so common we have an “options” market verses a “futures” market 2) speculators can not provide much " economic service" in fact I would say zero economic service sounds better to me. I guess there is a case for some liquidity however the speculators do not produce, process, transport, consume, etc… so the liquidity issue is of minor value. 3) The farmer does not “freely chooses to pass” the farmer chooses to discount for risk, whether the proper discount or risk is the whole issue in and of itself. 4) I think your last line is best except it should read “Is there anything wrong with buying a house for $100,000, and selling it in two hours-] years/-] for $150,000?” After all the house’s value could change that much that fast right?

However this is a long way from the OP’s questions. Stocks are not evil. Though many have gambled with stocks, stocks are not a gambling game. Stocks do represent a position of ownership and are morally neutral .

 

[DebChris]

…
However this is a long way from the OP’s questions. Stocks are not evil. Though many have gambled with stocks, stocks are not a gambling game. Stocks do represent a position of ownership and are morally neutral .

Exactly. Stocks are a way of investing money. Now a person can choose to gamble his/her money, betting which horse will win. A person can also gamble with the stock market, speculating about which stock will bringing the “quickest buck for the lowest cost.”
The commodities market, for instance, is about seeking quick gain.
When a person buys stock he/she is buying into that company’s future. His/her view may be short term, which is like gambling, or long term seeing gains over time.
A related theme would be the person who bought a condo in the housing market with the intent of “flipping it” for profit and the person who buys a home because he/she wants a place for the family to live. The first is gambling. The second is not.