Gambling and investing

Gambling is a game of chance. You bet a sum of money on a future outcome. You hope that it happens and you win the bet. If it does not happen, you lose the bet.

You can gamble on a game of roulette that has the number 1 to 36. You choose a number and place a bet. If the number appears on the next role, you win a price of 35 times of your bet. If it does not appear, you lose your bet.

You can also gamble on a 4 digit number or the numbers that will appear in Toto. You can also gamble on the Big Sweep and hope that win a large prize if your ticket number is drawn.

When you "invest" in a stock or foreign currency, you are also gambling that the price of the stock or currency will go up and give you a profit. If it goes down and you are not able to hold the position (e.g. if you are on borrowed money), you will have to sell the stock or currency and take a loss. You are actually gambling (or speculating - to use a nice word) on the price of the stock or share.

If you choose a good stock and is prepared to keep it for a long time to earn a share of the future profits, and you do not bother about the price of the stock, you can be considered as "investing" in the stock.

When you gamble, and this includes speculating in financial products, you have to make sure that you are getting a fair payout for your risk of loss. If you have a 1 in 6 chance of winning (and 5 in 6 chance of losing) in a game of dice, you should get a payout of 5 times for winning.

You should avoid structured products where the chance of winning is not transparent to you. You are likely to be given a lower payout than is justified by the risk that you are taking.

I shall write more about calculating the odds (or chance of winning) in a later article.

Tan Kin Lian