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Can investing sometimes be just a
form of gambling?
By Keith Rawlinson
Volunteer Budget Counselor
In the article What does
God teach about investing,
we established that God does
want His people to invest. The Bible
does not directly address gambling, but does suggest that gambling is a
bad idea and is not pleasing to God. The Bible also teaches
us
that trying to get rich quick is a bad idea as well. Since
that
is the case, it is reasonable to conclude that investing is not
gambling. Now that we have established that, let's talk about
why
investing is not gambling and how they are different.
Investing, by the definition I use in
financial counseling, is attempting to make a profit by
using money to acquire something of value that has a good
chance
of being worth more in the future. In other words, investing
is
acquiring things of value. Gambling, on the other hand, is
using money to buy a chance that we will be given more money.
Do you see the difference? When investing, we are
buying
something of value. When gambling, we are buying nothing but
a
chance.
Investing
Some
investments are better than others, and some have a higher chance of
success than others; but a true investment has some kind of intrinsic
value. The term intrinsic value simply means that the value
is
more or less built in. That is to say, the
investment could
be resold for a set amount based upon there being a recognized value.
I think a few examples of investments will be of help here:
Buying stock in a company
When
you buy stock in a company, you are legally part owner of that company.
Unless you hold millions, or maybe billions of shares, you
own a
very minuscule and insignificant part of the company, but you do own
part of the company nonetheless. Therein lies the intrinsic
value. The company generates sales which have a value.
The
company also owns equipment and assets which have value. In
many
cases, rights to the name of the franchise even have value.
So,
no matter how little of the company a stockholder actually owns, there is still an
intrinsic value.
Interest-bearing account
Whether
it is with a brokerage, bank or credit union, an interest-bearing
account has intrinsic value. At the very least, the account
is
worth the money deposited in it. On top of that, it is worth
the
interest it earns.
Precious metals
Metals such as gold, silver, platinum, etc. have intrinsic
value. These metals have industrial uses, as well as uses in
making jewelry. As long as there are actual, practical uses
for
precious metals, there will always be someone willing to buy them at
the right price. That means they have intrinsic value and,
therefore, qualify as an investment.
Contracts
This
one often surprises people, but a contract does have an intrinsic
value. Contracts are things like offers to purchase assets,
agreements to do work for pay,
mortgages, delivery of commodities, rental agreements, etc.
Since
a contract usually represents a promise to pay money or to deliver
goods or services, the contract has an intrinsic value.
Simply
stated, the holder of the contract will gain benefit of some kind as a
result of the contract; therefore, the contract has intrinsic value.
Please note that I am NOT
endorsing the above examples for investing purposes. In fact,
some of
these examples are very poor investments. I am
simply using
them to explain intrinsic value. For more information on what
to
invest in, and what not to, please read my Eclecticsite.com article Getting started in investing.
Gambling
Compared to investing, gambling has little or no intrinsic value.
If, for example, you buy a lottery ticket,
it has no intrinsic value except for the value of the paper on which it
is printed, which is virtually nothing. The lottery ticket
represents only a chance to win some money; it has no value otherwise.
Yes, they may have sold it to you for a dollar, but that just
means you were willing to pay a dollar for something of almost no
value--it does not mean that the ticket is actually worth a dollar.
The
other part of the definition I gave for an investment is that there is
a
reasonable chance of it increasing in value. A lottery
ticket may
only give you a one in 150 million chance of winning, and that
is
certainly not a reasonable chance of making a profit. Yes,
the
amount
you could win might be huge, but the chances of actually winning it are
ridiculously slim; therefore, there is definitely not a reasonable
chance of that lottery ticket resulting in a profit.
The
same holds true for playing poker, the roulette wheel, slot machines
and many other forms of what is considered gambling--you are not buying
something of value, there is not a
good chance of increase in value, and there is no intrinsic value.
Conclusion
So,
there is the answer: if you are buying something of value
that
has a reasonable chance of increasing in value over time, then it is
investing. If, on the other hand, you are buying
something
of little intrinsic value that merely gives you a chance at making a
profit, it is gambling.
Don't let the time frame fool you either.
Some legitimate investments produce a profit, sometimes a
huge
profit, in a very short time; but that does not mean that they are
gambling. If your longterm strategy is to make a big profit
very
quickly with a lot of relatively risky, short-term investments, then
you aren't gambling, but you are
violating the biblical principle that tells us to avoid trying to get
rich quick.
So,
simply stated, if you are trying to make a profit by buying something
of intrinsic value which has a reasonable chance of increasing in value
over time, then it is investing.
If you are trying to make a
quick, easy or huge profit by buying something of little or no
intrinsic value which gives you a relatively minuscule chance of
success, then you are gambling.
For
a lot more information about saving, investing, getting out of debt and
building up wealth, be sure to check out the articles available on my
Eclecticsite.com Financial Page.
This article copyright © 2009 by
Keith C. Rawlinson
(Eclecticsite.com). All rights reserved.
This article may be copied for non-profit use including newsletters,
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