Last Updated on May 15, 2023
Sports betting is one of the biggest industries in the world. Some gamblers have developed betting addictions, causing them to experience anxiety whenever they are unable financially to wager on a match between two clubs.
According to a sports analyst, sports betting is on the rise in Nigeria, where “moms send their kids to place bets on their behalf and unemployed youths crave match days so they can wager and hope for a win.”
While some sports fans view betting as a means to “invest” in their hobby, there is a major difference between betting and investing.
How many times have you overheard someone say, “Investing in the stock market is just like gambling at a casino” during a financial discussion? It’s true that both investing and betting include risk and decision-making, specifically the risk of capital with the expectation of future gain. But although betting frequently has a brief lifespan, investing in stocks can have a lifetime. Additionally, over the long term and on average, gamblers might anticipate receiving a negative return. On the other side, over the long term, investing in the stock market often has a positive projected return.
It’s crucial to consider what betting is and what counts as an investment.
What is Investing?
The act of investing is the commitment of capital to an asset, such as stocks, with the hope of making a profit or an income. The fundamental idea behind investing is the anticipation of a return in the form of income or price growth. In investment, risk and return are inversely correlated; low risk typically translates into low predicted returns, whereas more significant profits are typically associated with increased risk.
Investors must constantly choose how much capital they are willing to risk. On each given trade, some traders typically risk 2–5% of their cash. Long-term investors are frequently reminded of the benefits of diversification across various asset classes. However, within a single asset class, particularly if it’s a sizable one as the stocks class is, risk and return expectations might differ significantly.
Spreading your capital over several assets, or various sorts of assets within the same class will probably assist reduce potential losses. In essence, this is an investment risk management method.
Some investors analyse stock charts to understand trading trends and improve the performance of their assets. Stock market analysts use the charts to attempt and predict where the stock will go in the future. Technical analysis is the term used to describe this field of study that focuses on chart analysis. The commission an investor must pay a broker to buy or sell stocks on their behalf can impact investment returns.
What is Betting?
Staking something on a contingency is referred to as betting. It means putting money at risk in a situation where the outcome is unknown and there is a significant element of chance.
Gamblers, like investors, must carefully choose how much money they wish to “put in play.” In various card games, pot odds—the amount needed to call a wager in relation to the amount currently in the pot—are a tool to evaluate your risk capital and risk-reward. The player is more likely to “call” the bet if the odds are in his or her favour.
The majority of professional gamblers are quite skilled at managing risk. They investigate a horse’s pedigree and track record as well as a player or team history. Card players frequently observe other players at the table for hints when trying to gain an advantage; excellent poker players can recall bets made 20 hands earlier. In an effort to learn more, they also research their rivals’ demeanour and betting tendencies.
The player in casino gambling is competing against “the house.” Bettors are in a sense betting against one another in sports betting and lotteries, two of the most popular “gambling” activities that the typical person partakes in since the number of players influences the odds. For instance, making a bet on a horse race involves competing with other bettors: The amount of money wagered on each horse determines the odds, which are constantly changing until the race actually begins.
Gamblers typically face unfair odds: The likelihood of losing an investment is typically higher than the likelihood of gaining more than the investment. A gambler’s chances of generating a profit can also be lowered if they are required to put up “points,” or additional funds above their original wager, which are held by the casino whether they win or lose. Points are similar to what an investor pays in broker commissions or trading fees.
Key Differences Between Investing and Gambling
A fundamental idea in both betting and investing is to reduce risk while maximising gains. However, the house always has the advantage in betting—a numerical advantage over the player that grows the longer they play.
In contrast, several investment markets consistently see long-term growth. This isn’t to say that a gambler will never win the big one, and it’s also not to say that a stock investor will always make money. Simply said, if you keep playing, the odds will eventually work in your favour as an investment rather than a gambler.
Your options for reducing your losses are limited. If you put money into the NFL office pool and you don’t win, your entire investment is lost. There are no loss-mitigation tactics when wagering on any form of pure gambling. In-play betting, which may be adjusted during gameplay, and partial cash-out options, which allow recovery of part of one’s stake if an outcome looks to be going against the best, are recent developments in online sportsbooks that have been implemented to help gamblers manage risks when wagering on games.
Investors, on the other hand, have a wide range of options to avoid total loss of risked cash. A straightforward method to reduce unnecessary risk is to set stop losses on your stock investment. You can choose to sell your stock to someone else and keep 90% of your risk capital if it drops 10% below the price at which it was purchased. However, if you wager N10000 that Arsenal will win the Premier League this season, you cannot receive a partial refund if they only make the playoffs. Don’t forget about the point spread, too, because even if they did win the Premier League, the bet would still be a loss if they didn’t win by more margin than the bettor predicted.
Investors and gamblers both look to the past, analysing past results and present behaviour to increase their chances of making a successful decision. Both the worlds of investment and gambling value information highly. However, there are differences in the information’s accessibility.
Information on stocks and companies is easily accessible to the general public. Before investing money, it is possible to do some study and analysis on company earnings, financial ratios, and management teams, either directly or through research analyst reports. Stock traders who conduct hundreds of trades daily can utilise the day’s events to inform their choices in the future.
In contrast, if you sit down at a blackjack table in Las Vegas, you are unaware of what occurred there an hour, a day, or a week ago. The table may be described as hot or cold, but there is no way to quantify such information.
The Time Factor
The idea of time is another significant distinction between the two pursuits. In contrast to an investment in a firm, betting is a temporary activity. When you gamble, your chance to win money from your bet has passed after the game, race, or hand is done. Your money has either been gained or lost.
On the other side, investing may pay off over time. Investors who spend their money at risk buying shares in dividend-paying companies are really rewarded for it. As long as you hang onto their stock, companies will give you money regardless of what happens to your risk capital. Smart investors are aware that earning dividend returns is essential to profiting from equities in the long run.
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