[I cited what I believe are significant distinctions between gambling and investing in equities.]
Gambling: "payment of a price for a chance to win a prize" -- taken from the Law Dictionary by Steven Gifis, 1991.
I guess I should have explained this better in the original post, but I see that X the Unknown did this is this post: Message 3559284
For some odd reason, I have noticed that many of your postings defend the market using the same phrases as the ad copy for various mutual funds and stock brokers, including the one about owning a piece of a growing business. Being more cynical, I'd say that the financial industry has its own agenda of making a profit for their firms, and if you happen to make a little money, that's nice but irrelevant to them.
So, let's look at this from the standpoint that you are buying a business, using numbers from yesterday's Barron's newspaper for the S&P 500 index, which is a pretty good picture of the market. Here are 3 reasons for buying a business:
(1) Expectation of a stream of income, i.e., regular cash payments from the profits. With a dividend yield of a mere 1.52%, you could do better by buying U.S. Treasury securities. (In theory, publicly traded companies put their profits back into the business, but a fair portion goes to pay huge salaries and bonuses to the company's executives.)
(2) Potential for future profits. At the current P/E ratios for the S&P 500, an investor would have to wait 26.07 years before the company's earnings would equal what they paid to buy the company (by buying its stock).
(3) Purchase of the company's assets at a bargain price. The current price to book ratio is 5.77 which means that you are getting less than 18 cents of assets for every dollar you spend on the company's stock.
And you claim that the stock market isn't a form of gambling! At current stock prices, you are not getting much of tangible value, you are, as I said before, gambling that someone, somewhere, will buy your shares for more than you paid for them. It is mathematically impossible for the price to keep going up -- where would you find buyers for the shares? Do you think that someone in Bangladesh can be talked into buying your shares for more than you did?
Darvas' book makes some interesting comparison between aspects of the stock market and Las Vegas (for example, he compares the stock broker to the casino dealer and stock market newsletters to the "tout sheets" that claim to know which horses will win races), but mainly, his book is about a trading system that uses stop-loss orders and other tricks.
Paul McGinnis |
