An old mate just asked me if I fancied a trip to the races at Newmarket in a couple of weeks. “No, not really my thing... thanks, but no thanks”, I replied.
He was incredulous... “You love gambling, you’re always gambling. If it’s not houses, or shares, then you’re into gold, or whatever else is going on...what’s wrong with the nags?’
Do I love gambling? It was a good question. I’ve never really liked gambling on the dogs, or horses. But certainly, I’ve got no problem putting serious money into my speculations.
So what is the difference between investing and gambling?
And could you be kidding yourself that you’re ‘investing’ wisely and safely?
The difference between investing and gambling
I’ve got quite a simple way of splitting out a gamble from an investment.
Investing makes money in the long run. Gambling loses money over the long term.
Okay, so it’s a bit of a cop-out. It kind of relies on hindsight to make the distinction. But I reckon a lot of people are letting their investments turn into gambles.
To me, it makes no difference if you’re punting on blue chip stocks, or a horse race, so long as you come out on top in the long run, then it’s investing. I guess that’s why I don’t like going to the dogs or to horse races. I just have no way of coming out on top in the long run. Of course, there are social aspects to it too... but losing money isn’t something I can ever get too excited about.
For the happy few, the professional speculators that make money year in, year out, I’m delighted they’ve found an investment job that probably gives them great pleasure. But as for me, I’m sticking to what I do best…
Don’t be fooled into dangerous gambles
I’ve seen more than my fair share of so-called investment funds set up to cash in on the latest, trendy financial fad.
For instance, just before the dot-com crash in 2000, new technology funds were appearing every week. Of course, they described themselves as investments, but in reality, they were probably more akin to gambling than putting your money on a five-to-one shot at Kempton Park.
Investments makes money in the long run
So, it’s not betting in itself that makes it a gamble. I think that a spreadbet account is an important tool in any investor’s kitbag. It offers so many options that you simply don’t get with a conventional stockbrokers account.
You can use spreadbets to make short-positions to balance the risk in your overall portfolio. I’d say that in this case, far from gambling, you’re using a betting account to enhance your investment returns. The key is thinking about the long term...
With computers today, it’s easy to track your portfolio daily, or even on an hourly basis! But this is madness.
Do tennis players keep their eyes glued to the scoreboard during a rally? No, of course they don’t. They keep their eye on the ball and focus on their strategy. That’s how they build a great score...
In the same way, we need to focus on our long-term strategy to assure ourselves of the best long-term outcome.
The financial industry is terrible at taking the long-term view. It’s been steadily moving further towards short-term thinking. Just about all professionally managed funds are judged on a quarterly basis. At the end of each quarter fund managers are compared to the appropriate index.
Making bold investments with long-run performance in mind plays second fiddle to daily punts on whatever’s happening in the market.
For top-notch performance, we need to accept that we can’t know everything that’s going on in the short run. It’s what the successful fund managers like Buffett and Fidelity’s Anthony Bolton do. It’s a rare breed that can say to hell with what’s going in the short run!
Can you honestly say that you’re not gambling?
I’m quite happy to call ‘professional gamblers’ investors, and I’m certainly happy to call many fund managers gamblers.
Poorly managed investments amount to gambling. If you take a close look at your saving plans, are you sure that you’re happy to call it investing? If you’re saving for retirement in 25 years time, have you selected a strategy that’s best placed to deliver over that time frame?
This is why I urge you to take a look at my friend and colleague, Simon Caufield’s investment ideas. The whole concept is long-term ‘true value’. Investments that offer such irresistible value that Simon’s convinced they’ll go up over the long run.
Give Simon five minutes to explain his strategy and it may just make you reconsider how you go about investing.
And as for the horses... let’s see if I can convince my mates to have a round of golf instead.
Good investing,
Bengt Saelensminde
For The Right Side
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