Gambling vs. Stock Trading

I think it’s pretty easy to make the case that gambling is immoral. And I’ve heard lotteries referred to as a tax on people who are bad at math. I’ve had this repeated discussion about what exactly gambling is, and in particular whether trading stocks falls into that category. So here’s my output from that line of discussion.

Defining “Gambling”

It’s trickier than expected to define what gambling is, especially if you start the the premise that it is categorically immoral. It’s more complex than just taking risks – after all, getting in your car and driving to work involves a risk. And it’s not just getting something based on chance – after all, if you buy a candy bar and “instantly win” a million dollars, I wouldn’t consider that gambling. (Except maybe if you bought the candy bar for that purpose.)

I’ll skip the discussion here and give you what I think is a good definition for gambling:

Gambling is an effort to gain money which involves (1) an element of risk AND either (2a) results based on chance OR (2b) a motive to get something from someone else without providing something of value in return.

So a sweepstakes is not gambling because you aren’t risking anything. Same for a contest with a prize for the winner, assuming that you don’t pay to enter it. But poker and betting on sports are gambling, because even though they are not based totally on chance, the goal is to take money away from other people. And buying a raffle ticket is gambling, because even though you’re not necessarily trying to take money away from people, you’re investing in pure luck. I guess the same goes for Russian roulette, although that’s wrong for more reasons than that.

Stocks

So that brings us to the question of whether trading stocks is gambling. I think that the answer is a proverbial “definite maybe.” When you buy stock, you definitely hope that you are going to sell it for more than the person sold it for, but that’s just standard business practice, the same as any merchant does. And there is some actual value associated with a stock share, even though it’s pretty abstract. So I wouldn’t claim that it’s fundamentally wrong.

On the other hand, I do think a lot of people approach stock trading the way they’d approach a poker game. For instance, if you sell stock because you’re convinced it’s about to plummet in price, then that’s arguably like trying to trick someone into taking the loss instead of you. And making decisions based on what you think the market will do isn’t all that different from trading Ultimate Football players based on what you think the teams will do.

A thought experiment

In order to consider the value of a transaction, it’s interesting to ask whether the world would benefit if everyone in the world were to spend a day doing it. Consider these:

• Farming: Definitely.
• Fixing plumbing: Yes.
• Passing laws: Hopefully, yes.
• Playing poker: Definitely not.
• Playing baseball: Not much, other than some physical exercise and entertainment for the people watching. (Going to a baseball game isn’t gambling because you pay the same regardless of the outcome – no risk. But it does make you wonder why you can make a career out of playing sports.)
• Painting, playing music, writing books: Sure. Not a lot of practical value, but artistic expression does have value.
• Trading stocks: I don’t see how. This would be essentially like passing dollar bills around. Some people would end up with more and some with less, but overall there would be no value created.

Conclusion

To reiterate, I’m not claiming that stock trading is immoral. But I definitely think that if you approach it with the attitude of getting rich quick instead of investing in actual companies, that you’re likely to get a lot of the bad side-effects that you’d get from actual gambling, like a compromised work ethic, obsessive involvement, and a high potential for losing money that could have been spent on something of concrete value. So there’s my two shares. (Get it?)