Is stocks like gambling?

[Martin_R]

Firstly:
I only day trade as I think that’s* less* risky. I’ve heard people say day trading is more risky as it’s short term but leaving your money in the market while you go to bed seems much more risky to me. The market is still trading somewhere in the world and who knows what will happen while you’re asleep?

Secondly:
It is gambling if you don’t know what you are doing. You need lots of education on the subject.

Thirdly:
If you put your money into a pension scheme or into a bank account and get interest on it, where did that money came from? Answer: they put into the stock market *on your behalf *and made a big profit. What you get is only a tiny percentage. So why not learn to do it yourself and then you can keep it all? (and use it in a way that God would approve of course).

Forthly:
I agree with the person who said this is not right for everybody. e.g. People who get emotional, greedy, addicted, wreckless, arrogant, boastful etc.
I’m also reminded of that often misquoted verse:
“Money is the root of all evil”. Wrong!
It actually says “The love of money is the root of all evil”.

 

[Bluegoat]

But here is the question that seems the most important to me -

Is the stock market system, in itself, a good idea? Has it been a positive force? Does it recognize true value? Is it good for people? The environment?

What about the rest of our economic system? What about the idea that the economy needs to grow endlessly? Is it good that banks lend out substantially more money than they have? What does that imply, theologically?

I think questions about the stock market, and usury in another thread, are really all about how we see economics. And I’m not convinces it’s a good thing - neutral at best, and then only if a person is very careful about how he uses it.

 

[otjm]

But here is the question that seems the most important to me -

Is the stock market system, in itself, a good idea? Has it been a positive force? Does it recognize true value? Is it good for people? The environment?

The stock market system - the process of funding companies, in and of itself doesn’t impact the environment with the exception of offices and support systems (heat, lights, water, building), and arguably if it did not exist, the people employed within it would be doing something else. As to being a good idea, there have been market systems for centuries; it is hardly something we invented a few years ago. The current system, like others, has had its ups and downs; one only need to look in the 1600’s with the Dutch hysteria over tulip bulbs to see that problems are not something simply intrinsic to the current form.

Has it been a postive force? It is a means of companies, privately owned, changing ownership to publicly owned, which allows them to raise needed capital. One could argue against such a system; I am no fan of Karl Marx but he seemed to be philosophically opposed; yet his system has been shown to be flawed beyond all his and others’ expectations. Is capitalism without flaws? Of course not, but it is the system that provides the greatest opportunity for people to be able to develop and idea or product, of any system that has come along since the caveman.

What about the rest of our economic system? What about the idea that the economy needs to grow endlessly? Is it good that banks lend out substantially more money than they have? What does that imply, theologically?

I think questions about the stock market, and usury in another thread, are really all about how we see economics. And I’m not convinces it’s a good thing - neutral at best, and then only if a person is very careful about how he uses it.

A number of popes have written on the subject. None of them has been totally in favor of capitalism; but we have constantly seen that government is debatable in terms of regulating in a way that doesn’t often create more problems than it solves.

We are currently facing a radical change in health care; it seems that the government proposal rather than curing the problems we have is simply creating different, and potentially far greater ones - especially if one wants to look at the moral issues.

The other side of the coin - no governement intervention - opens society to the chaos of might making right. It is a complex question that will not be easily solved, if ever solved.

So my short answer is that a market system that is completely unregulated will not work well; and a system that is highly regulated will not work well. The current system has problems, which should be obvious to anyone who has watched the fiasco concerning loan parameters, and the subsequent derivitives marketed without any acknowledgement of the risk attendant to the loans created. One should at the same time note that the change in qualifications for loans was originated during a Democratic administration, to solve the problem of certain communities having statistically a very low entry into the real estate market; the “cure” created a phenomenal case of pneumonia. So a good deal of the problem we have today is due to government trying to fix a problem, and the fix turned out far worse economically than the original problem.

 

[GodLovesTheSpek]

If one becomes a slave to the minute-by-minute rise and fall of one’s “investments” then their God has become money.

Given the barrage of online trading commercials (even babies showing to be doing it), I suspect the involved corporations are looking to draw more people into an all-consuming world of 'round-the-clock “stock trading”. People selling and buying at dizzying rates. In effect the “investments” stop becomming investments at all but a never-ending vice of money shuffling looking for that “big score”.

If done healthily stocks can be like a planted field of crops. In time one hopes for a yield that reflects the effort, time and patience. That’s investing.

 

[otjm]

If one becomes a slave to the minute-by-minute rise and fall of one’s “investments” then their God has become money.

Given the barrage of online trading commercials (even babies showing to be doing it), I suspect the involved corporations are looking to draw more people into an all-consuming world of 'round-the-clock “stock trading”. People selling and buying at dizzying rates. In effect the “investments” stop becomming investments at all but a never-ending vice of money shuffling looking for that “big score”.

If done healthily stocks can be like a planted field of crops. In time one hopes for a yield that reflects the effort, time and patience. That’s investing.

However, it is not for no reason that “buy and hold” is now nicknamed “buy and fold” as one watches companies bought high go bankrupt. That might give one pause to go back and re-visit the Gospel reading aobut the three men given talents…

The fail rate of those who get caught up in the day trading game is 90%+. That should give anyone pasue to detemine if that is truly the way to be involved in the market.

However, one can be involved in the “minute by minute” (“hour by hour”? “day by day”? “week by week”?) without being a slave to it. I am involved in budgeting a full 8 hours a day+; I am hardly a slave to it. I walk away at the end of each day and it doesn’t cross my mind again until I am in front of a computer the next day. It is just a job.

In fact, the traders who are among the best traders - and I define that by those who actually make a profit - are those who are very involved, but it is just a job. They are not emotionally involved with it; they have learned to control their emotions. The ones who become a slave to it - emotionally involved - are those who end up losing out in the process.

 

[PJM]

=servus Mariae;5459632]Would it be immoral to earn money by investing in stocks? Would it be a sin? or not a good idea?

No:thumbsup:

And life is full of risk. God gives us minds, intellects and freewills to enable us to evaluate the odds of success.

Prudence is a Divine attribute

 

[Bluegoat]

However, it is not for no reason that “buy and hold” is now nicknamed “buy and fold” as one watches companies bought high go bankrupt. That might give one pause to go back and re-visit the Gospel reading aobut the three men given talents…

I didn’t think that the “by and hold” philosophy meant hold onto anything - if a person realizes a company is being ill-managed, for example, one ought to be prudent.

 

[DebChris]

I didn’t think that the “by and hold” philosophy meant hold onto anything - if a person realizes a company is being ill-managed, for example, one ought to be prudent.

Prudence is the key word that differentiates between speculative gambling and investing.

You need to know when to hold them. Know when to fold. You need to know when to walk away. Know when to stand.–Thanks Kenny Rogers.

 

[otjm]

I didn’t think that the “by and hold” philosophy meant hold onto anything - if a person realizes a company is being ill-managed, for example, one ought to be prudent.

People practice buy and hold for several reasons - a) they don’t know what to do; b) because they don’t know what to do, and heard that “Dad” or Grandpa" made his fortune buying and holding, or were told by someone who appeared more knowledgeable than they that was the thing to do, they follow the advice of buying and hoping.

Just this week, we had a story in the paper of a gentleman who died, leaving 3+ million to a charitible organization; one of his primary stocks was Toyota, which he bought eons ago.

People assume, because he did that, that is the thing to do. What they don’t hear is how many stocks he bought that did little or nothing, or lost money - same for “Dad” or “Grandpa”. Buying and holding is fantastic if you get in on the ground floor of a Toyota, or a Microsoft, or a Starbucks. Most people don’t. And the vast majority of stocks off an IPO never perform like those stars did.

Buying and holding a bluechip, if you bought it two or three years ago, may not even perform as well as the S&P 500 - which hasn’t done all that well on a long run. Buying and holding at the bottom of a market correction like the one we are just coming through is great - except that fear (because it has gone down so far so swiftly) will keep most people out when they should be buying like crazy. Then, when the market is cooking, they get in, only to find that it was about to turn and they are now on a downhill slope of ice with no brakes.

All methods will work some of the time for some of the people. But unless one educates oneself very well in the whole process, and understands not only how to buy, but how to sell, how to prevent big losses, and how much to invest in any given stock and when, one is far more likely to be disappointed than pleased. And that is why it too often is compared to gambling, because people don’t know how to buy, when to sell, how to keep their emotions out of it, and how to protect themselves form the inevitible market changes to both the individual stocks and the whole market itself.

Buy and hold is great if you get in on the ground floor. It can also be great if you get in where a stock has been beat down, and come up with a hot product - Apple is a prime example.

And golly, there are only somewhere between 6000 and 9000 to choose from. Should be pretty simple, eh?

But back to your original comment; often, by the time an individual stock owner has figured out that the company is being mismanaged, the stock has already plummeted. They need to have gotten out long before.

 

[GodLovesTheSpek]

Perhaps the explosive volatility of the market is of its own creation, companies rising and falling in part because fickle investors are making “educated guesses” with their life savings on an hourly basis, becoming oversaturated with “information” and creating chaos within the business world.

Yes, it can be “business” for the well-informed and educated, like professional poker players.

One must be careful not to lose sight of the real goal of life.

 

[otjm]

Perhaps the explosive volatility of the market is of its own creation, companies rising and falling in part because fickle investors are making “educated guesses” with their life savings on an hourly basis, becoming oversaturated with “information” and creating chaos within the business world.

Yes, it can be “business” for the well-informed and educated, like professional poker players.

One must be careful not to lose sight of the real goal of life.

If one watches the market, it is neither that volatile nor that chaotic.

And companies do not rise and fall according to the market; rather, the market moves more as an indication of the company. When the market as a whole makes a move downward, pretty much all companies see their stock move that way. It may be that due to a large downward move that a company may have problems with financing credit, but on the whole, those that have such problems had them before the market made its move; the move only exposes the weak companies.

Fickle individual investors are a mere drop in the budket compared to the money that is under management - e.g. mutual funds. And non-fickle individual investors are only another mere drop in that bucket.

 

[Texas_Roofer]

But here is the question that seems the most important to me -

Is the stock market system, in itself, a good idea?

yes, it allows you to buy what would otherwise be unavailable to you

Has it been a positive force?

yes as it spreads opportunity to all rich and poor alike

Does it recognize true value?

that is all it is ?

Is it good for people?

yes for the reasons already mentioned

The environment?

? I do not see the connection

What about the rest of our economic system?

? our economy is trade between people to improve their lives, so more trade usually equals better lives

What about the idea that the economy needs to grow endlessly?

only if we desire to improve our lives

Is it good that banks lend out substantially more money than they have?

banks do not lend more money than they have, what happens is runs in loan failures

What does that imply, theologically?

nothing, theology is about man and god thus man and man, just as man can abuse another man man can use economics as easy as his fist

I think questions about the stock market, and usury in another thread, are really all about how we see economics. And I’m not convinces it’s a good thing - neutral at best, and then only if a person is very careful about how he uses it.

money was not intended to control our lives and money does not control are lives that is one man manipulating another. Do you think you would live better with no air conditioning, natural gas heat, cars, brick houses, etc., etc.? Economics is just the study of that trade (your labor for their car).
I hope that helps

 

[DebChris]

money was not intended to control our lives and money does not control are lives that is one man manipulating another. Do you think you would live better with no air conditioning, natural gas heat, cars, brick houses, etc., etc.? Economics is just the study of that trade (your labor for their car).
I hope that helps

I think this is where the OP’s question lies. Investing in stocks can be a good way to grow personal wealth. Like anything else, it becomes a problem when it is allowed to control a person’s life, becomes all that he/she thinks about. Investing in stocks is like gambling when the goal is merely to beat the next economic downswing.
There will be normal ups and downs in the stock market. This is why holding for the long term is so often recommended by conservative investment firms.
A person invests in a company because they have a product or service to sell. There is risk taking on the part of the investor. It is possible to lose money. A person needs to know what he or she can risk without taking away from personal needs for food, shelter, and clothing.
The question becomes, are you “playing the stocks” as you would bet on horses in a race, or is your purpose to help a company market the product or service they have to sell?

 

[Bluegoat]

yes, it allows you to buy what would otherwise be unavailable to you yes as it spreads opportunity to all rich and poor alike that is all it is ? yes for the reasons already mentioned ? I do not see the connection ? our economy is trade between people to improve their lives, so more trade usually equals better lives only if we desire to improve our lives banks do not lend more money than they have, what happens is runs in loan failures nothing, theology is about man and god thus man and man, just as man can abuse another man man can use economics as easy as his fist money was not intended to control our lives and money does not control are lives that is one man manipulating another. Do you think you would live better with no air conditioning, natural gas heat, cars, brick houses, etc., etc.? Economics is just the study of that trade (your labor for their car).
I hope that helps

Um, not really.

Traditional economics has a host of problems related to it - it values only monetary activity, for instance, and it ignores certain kinds of costs, such as environmental ones (which you couldn’t see the relation to.) It boggles my mind that you think economics is not related to theology in any way. Moral theology is about what we do; mankind’s economic life is an action, as individuals, and also as a society. The economic model we choose as a nation or world has a huge impact on how we, and other people, live.

For what it’s worth, I don’t think we’d be any worse off if there were no cars, and that goes for many other products as well. Most people have not had such things in the past, and it didn’t affect their happiness or their relationship with God negatively.

 

[DebChris]

Um, not really.
…
For what it’s worth, I don’t think we’d be any worse off if there were no cars, and that goes for many other products as well. Most people have not had such things in the past, and it didn’t affect their happiness or their relationship with God negatively.

A person not wanting to invest in the automobile industry could invest in a bicycle company. There are different companies out there. One might concentrate on racing bikes while another those for commuters. I saw the ad on TV for a bicycle that automatically shifts. I agree that we can make monetary choices related to personal values. Do I want to invest in slot machines or a publishing house? How about a company that is refurbishing old cigarette machines to sell tiny carvings instead? Life is definitely about making choices.

 

[Texas_Roofer]

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.

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?

It seems we see a pattern developing?

Um, not really.

Traditional economics has a host of problems related to it - it values only monetary activity, for instance, and it ignores certain kinds of costs, such as environmental ones (which you couldn’t see the relation to.) It boggles my mind that you think economics is not related to theology in any way. Moral theology is about what we do; mankind’s economic life is an action, as individuals, and also as a society. The economic model we choose as a nation or world has a huge impact on how we, and other people, live.

For what it’s worth, I don’t think we’d be any worse off if there were no cars, and that goes for many other products as well. Most people have not had such things in the past, and it didn’t affect their happiness or their relationship with God negatively.

We have more trees today, more grass, more cows. more people. etc., etc, so the problem is what?* It would seem you under estimate the “happiness” associated with going hunger, lack of medicine, the affects of drought, oh and having few teeth, etc. If you could bring some one from the past ( 200 + yrs) and ask them if they like our economy they would think you nuts just for asking.

• look at California and Arizona deserts loaded with friut and golf couses

 

[WillieWonka]

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?

Economies of scale. Advances in agricutural technlogy have done wonders for yield per acre. But that equipment is expensive. It’s not feasible to have a small farm anymore because it can’t compete with the larger spreads that can produce a bushel much cheaper.

We probably don’t have a lot of smaller farms, but we do have a lot of independent farmers running substantial operations. Keep in mind that in 1900 it took 40% of the population to feed us. Now it takes 2%.

I’m not sure what you mean by inherent problems with production.

Specialty farmers are just that. They have identified a crop and market that is not well served by the larger operations, and they are exploiting it. That’s great. They are meeting a demand not sevred by the much larger agribusiness.

 

[otjm]

I think this is where the OP’s question lies. Investing in stocks can be a good way to grow personal wealth. Like anything else, it becomes a problem when it is allowed to control a person’s life, becomes all that he/she thinks about. Investing in stocks is like gambling when the goal is merely to beat the next economic downswing.

Perhaps we need a definition of gambling that we can all agree on. I take gambling to mean the risk of money when one is not able to determine, or is unaware of, the risk involved (or said another way, the odds). For example, a person goes to the casino and goes to the craps table, placing bets without any awareness of the odds of those bets. Or, the person gets into a game of poker, unaware of the odds of drawing a certain hand, and unaware of the changes of the odds when one may know some of the cards the opponent(s) may be showing.

Given this definition, interestingly, anyone opening a new business may be “gambling” if they are not aware of the odds of the business lasting 5 years, and/or the odds that the materials or services may be able to compete with other businesses supplying similar goods or services, etc.

I am not sure what you mean by the “goal is merely to beat the next economic downswing”. I would say that unless one was shorting the market, during a downswing holding onto a stock would be not only within the definition of gambling, but also within the definition of stupidity or something bordering it. If one was holding General Motors in 2007, one would not be particularly happy with one’s present position. And given that any number of pundits are questioning if GM can survive even with the bailout…

There will be normal ups and downs in the stock market. This is why holding for the long term is so often recommended by conservative investment firms.

And if one has been reading what chatter has been going on amongst conservative investment firms, one would find that a goodly number of them are now questioning that strategy, as they have found that the most recent market correction has caused 2 primary results: 1) people who had the buy and hold philosophy held on while the market made a steep correction, and depending on how long they were in the market before that, many have sustained a significant net loss below their original investments; and 2) when the pain finally became intense enough, they sold at a large loss, and were so burned emotionally as well as economically, that they will not get in now that the market has turned; this is resulting in their further failure to at least recapture some of their losses. The conservative experts are looking at not only losses to clients, but also losses of clients. They are beginning to question whether a conservative approach should actually have directed them to get their clients out of the market when it was clear the market was in trouble. Mutual fund managers are also looking at the same issue - huge runs on the funds at a time that was particularly poor to try to liquidate (which further exacerbated their losses and further pushed the market down). Their problem is that their charters most often do not allow them to go to a large amount of cash.

The question becomes, are you “playing the stocks” as you would bet on horses in a race, or is your purpose to help a company market the product or service they have to sell?

Or is the purpose to make a reasonable investment and use tools available to minimize losses and to increase gains? I disagree that there are only two alternaitves to owning a stock.

Once a stock is released - an IPO - the company at that point has received the majority of the help it is going to get in terms of marketing services and goods, until such time as the company may need to borrow, or need to issue further stock. So investment in stock after an IPO and its corrections is to invest in part into the publicly perceived value of the enterprise. As a company grows mature and is no longer able to expand rapidly or signifcantly, the company will start to return part of its net earnings as dividends to the stock holders; but while it is growing and before dividends are issued, the increase or decrease in the value of the stock is public perception of the business’s worth.

 

[WillieWonka]

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.

I think you may be jumping too quickly here.

While the economic boom was running full blast, China and India were making huge gains in their standards of living. The poor of the world were moving on up. They discovered they liked to drive just as much as we do, and large numbers of cars hit the road. So, where does the oil come from?

They began competing for the same oil the rest of us use, and that pushed up prices. Producers could not increase production at the same rate demand increased. All oil fields have what is known as the maximum sustainable production. That means the amount the field can produce day after day without harming the reservoir. Harming the reservoir means taking so much today that the eventual total take is reduced. That’s what happened in west Texas. All kinds of oil was left behind.

So, we had a classic increase in demand. The supply could not handle the influx of the once poor form China and India. They wanted a seat at the table, and they didn’t intend to wait.

Speculators are powerless to move a market unless the underlying fundamentals are there. But, speculators did enter the oil market as the price increased. They are vital to every market. Producers and refiners also stepped up participation.

But, for those who look to speculators as those who somehow control the market, how come the price of oil fell from $150 to under $40? Those speculators just decided to lose billions?

The liquidity argument does not assume anrthing about how many economic systems exist. It deals with the one we have. And it relies on actal history of price fluctuations when we didn’t have the liquidity. We might keep in mind that market capitalism has led to greater prosperity for more people than any other system in history. More than any religion or ideology.

 

[WillieWonka]

Yes, this!

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

Because free market capitalism has out performed every other system that has been tried. Lots of people think they have better ideas, but few can make them work in the real world.