Why isn't playing the stock market considered as Gambling?

[Patty O'Furniture]

...and therefore tightly regulated & controled by states?

The DJIA is down 160 points today. There have been days much worse. People sometimes lose their shirts taking risks with the stock market, often spending money they can't afford to lose in the hopes that a certain stock will take off and they'll be able to cash in.

Why are state governments so anal about who can open up gambling casinos (in most states, nobody can) where people might spend a lesiurly evening gradually feeding 30 pounds of quarters into slot machines (and receive some entertainment and a few free drinks), but don't seem to care nearly as much when a stock broker advertizes on a local TV station strongly suggesting that consumers would be wise to channel their insulin money into securities/bonds/stocks/oil leveraging/precious metals/whatever.

I have to admit, I have often been tempted to try making a quick buck on Wall Street but have no real know-how (except what I learn by looking at those TV commercials). On the other hand, I am never tempted to gamble at casinos (blackjack, slots, whatever). Clearly, gambling with the stock market seems more dangerous since you could lose many hundreds or thousands of dollars in a few hours.

[Houlihan]

Well, there is a distinction. If you feed ten dollars to a slot machine, you are purchasing a chance (or several chances) to win money. If you take that same ten dollars and buy a share of stock, you are actually buying a tangible asset that may fluctuate in value.

I guess we could argue about whether a share of stock, which simply documents a percentage ownership in a collective organization, is any more-or-less tangible than a chance to win a slot pull, but I imagine that would end up in GD.

[SpoilerVirgin]

Your premise is false. The stock market is tightly controlled and regulated by the government. The Securities and Exchange Commission (http://www.sec.gov/) is the federal organization devoted to regulating stock markets and transactions.

The government is anal about who can issue and sell stock, and has been known to be very harsh on those who violate their strict rules.

You can lose just as much money in a casino as you can in the stock market -- it depends how much you bet. However, there are two key differences between the markets and casino gambling:

1. By purchasing stock, you are investing in a company. This meanst that you are providing the company with capital to run and expand its business. In the long run, this helps to increase the size of the economy and keep it healthy. (Of course, there are various types of paper investments that don't meet these criteria. But in general if you buy stock in a corporation, you are giving money to help that business grow.)

2. Stock can be purchased and held. A large paper loss when the market drops does not necessarily mean that you have lost money in the long term. In fact, in the long term stocks are one of the safest investments you can make. If you diversify and select your stock purchases wisely, ultimately you will own pieces of major companies which are the foundation of the economy. If you make a big gambling bet and lose, that money is gone for good.

[gazpacho]

For the same reason why buying part ownership in a restaurant is not gambling. You are buying a share of a business. In fact I would say that owning a restaurant is a very risky proposition. Also there is a great deal of benefit to society gained by allowing businesses to raise money. Businesses provide work for people, they provide goods and services to people.

You have to try really hard to loose all you money in the stock market in a couple of hours. It is easy at a casino. And in the long run you are pretty much sure to loose all your money at the casino. You can only loose hundreds of thousands of dollars in a few hours on the stock market if you are putting in millions of dollars or are playing with some exotic and very leveraged instruments. Also for the past century money in the stock market has in general gone up at about 8% to 11% per year depending on who you talk to. So it is not to begin with the loosing proposition that casino gambling is.

If the government outlaws everything that is risky then there is not much people would be allowed to do.

[kpm]

If you ask me it is a form of gambling. Because the return is not certain. The odds are that you will get something back but stocks do go to zero and you get no return.

[robo]

1. By purchasing stock, you are investing in a company. This meanst that you are providing the company with capital to run and expand its business. In the long run, this helps to increase the size of the economy and keep it healthy. (Of course, there are various types of paper investments that don't meet these criteria. But in general if you buy stock in a corporation, you are giving money to help that business grow.)

From what I read on this forum this is not necessarily true. Yes, the initial stock offering goes to the company as investment but after that's all gone you're just buying from other investors and that money goes nowhere near the original company. I'd venture to say that the vast majority of selling and buying has nothing to do with investing in the company.

[Icarus]

Gambling is wagering on the outcome of a competition.

Investing is venturing on the future results of a business in a competitive environment.

...hey wait a minute...

[Patty O'Furniture]

Originally posted by SpoilerVirgin:

The government is anal about who can issue and sell stock, and has been known to be very harsh on those who violate their strict rules.

But the same government does not seem to be as anal about protecting its citizens from being taken to the cleaners from bad market investments. On the other hand, I am well protected from possibly losing my house to a gambling casino because I'd have to travel hundreds of miles to find a legal casino.

You can lose just as much money in a casino as you can in the stock market...

You're saying that one is not necessarily worse than the other. Then do you agree that the comparison has some value?

By purchasing stock, you are investing in a company. This meanst that you are providing the company with capital to run and expand its business.

How does this differ from what I would do in a casino? Wouldn't the money I lost there help to increase the size of the economy and keep it healthy?

Stock can be purchased and held.

Which is another way of saying that a stock in hand is an investment, not entertainment. While I agree with you on this point, I doubt that most of the people who use the phrase "play the stock market" would see it that way. These people are looking for quick money from risky bets. This is why I see little difference between "playing the stock market" and gambling.

If you diversify and select your stock purchases wisely, ultimately you will own pieces of major companies which are the foundation of the economy.

If, if, if. If you are smart and careful and if you have a professional broker and if you read the prospectus, you might do well. But the government's tight controls on gambling are in place to prevent stupid consumers from throwing the deeds to their homes onto a craps table (while having a little fun at the same time). The SEC is there to make sure the Big Boys play by the rules, not to protect consumers from their own greed and stupidity. I fail to see a significant distinction.

[SpoilerVirgin]

Originally posted by Attrayant
[QUOTE]Originally posted by SpoilerVirgin:

[quote]But the same government does not seem to be as anal about protecting its citizens from being taken to the cleaners from bad market investments. On the other hand, I am well protected from possibly losing my house to a gambling casino because I'd have to travel hundreds of miles to find a legal casino.

Over the past decade casino gambling has expanded rapidly throughout the U.S. Although there are still some states where it is not allowed, it is now available in a large number of states through Indian casinos, riverboat gambling, and the opening of gambling in cities outside of Nevada and New Jersey. It is not the Federal government which is preventing you from gambling in your state, it is your state government (and probably the citizens of your state, since gambling referenda have been on ballots all over the place).

If you read the Wall Street Journal, you see stories daily about people losing their licenses, being shut down, and even being imprisoned for stock fraud. Sellers who do not follow market regulations are removed from the marketplace.

You can lose just as much money in a casino as you can in the stock market...

You're saying that one is not necessarily worse than the other. Then do you agree that the comparison has some value?

I'm saying that one is not worse than the other mathematically. $1000 lost in the stock market equals $1000 lost gambling. The losses do not mean the same thing, however. There are other risks and benefits which I have pointed out that make the two ways to use your money very different.


How does this differ from what I would do in a casino? Wouldn't the money I lost there help to increase the size of the economy and keep it healthy?

No. Money that you lost in a casino would go into the pockets of the casino owner, who might use it for any number of purposes, which might or might not enrich the economy. Money that you invest in the stock market helps to build the business infrastructure of the country by helping businesses to expand. Of course it's a lot more complex than this. Some money is paid out in dividends, some goes to the people running the company, etc. But without a stock market, many companies would have difficulty raising capital. Without casinos...we'd have no casinos.

Which is another way of saying that a stock in hand is an investment, not entertainment. While I agree with you on this point, I doubt that most of the people who use the phrase "play the stock market" would see it that way. These people are looking for quick money from risky bets. This is why I see little difference between "playing the stock market" and gambling.

I will agree with this. If by "playing the market" you mean day trading, looking for the kinds of quick returns you get in a casino, doing little research and hoping for the big score, basing your stock picks on superficial trends and not the underlying soundness and growth potential of the companies in which you invest, then yes, that is gambling.

But the government's tight controls on gambling are in place to prevent stupid consumers from throwing the deeds to their homes onto a craps table (while having a little fun at the same time). The SEC is there to make sure the Big Boys play by the rules, not to protect consumers from their own greed and stupidity. I fail to see a significant distinction. [/B]

The government's tight controls on gambling are not there to prevent stupid consumers from throwing the deeds to their homes onto a craps table. As a matter of fact, consumers are perfectly free to throw the deed to their home in the form of every cent they have, plus every cent they can borrow off of sixteen different credit cards, plus every cent they can get by pawning every single possession they own onto the craps table, and the government is not going to do anything about it. Just like the SEC, the government's gambling regulations are there to make sure the Big Boys (in this case the casino owners) play by the rules, not to protect consumers from their own greed and stupidity. I fail to see a significant distinction between how the government regulates gambling (making sure that there is a level playing field, and then allowing consumers to bet and lose as much as they want), and how the government regulates the stock market.

The stock market serves an important economic function by providing capital to businesses. Casinos serve an unimportant function by providing entertainment. Both are tightly regulated by the government because they are easy opportunities for fraud. While I believe that there is a distinction between investment and gambling, I think that the government makes much less of a distinction than what you are implying.

[ftg]

I agree that some aspects of stocks (and I'll include other non-stock issues in my post) are more gambling than investment.

Take shorting a stock. Since when is betting that a stock will go down an investment? There are also complex indexing options that in no way can be considered investments. On some exchanges you can actually bet on the weather. (Which effects crops and such.)

I don't think the SEC is at all in effective control of the new forms of betting that have popped up in the last 20 years.


The stock (and commondity) markets should be only for long term investments in companies. No quick turn around buying and selling on fractions of points, etc. (And we can do it in cents now! The mind boggles on what this will do.) Stocks were originally intended as a way to raise money for corporations to expand business. We need to roll back to that concept.

The fact that the market indices swing so wildly is a symptom of this problem. Stocks markets shouldn't change 6% in a day because Kabul changes hands.

Note that in the short term the stock market is intrinsically unpredictable (else we would all get rich). In my branch of Computer Science we define random as an unpredictable sequence of numbers. Ergo, it is a casino in the short term.

[Doug Bowe]

When you play the market like a casino you'll have to accept casino odds.
This point has been made zillions of times since the NYSE opened. It really doesn't need to be made again.

On the other hand if you're willing to do some homework and invest ONLY LONG TERM MONEY you have a good opportunity down the road for a comfortable retirement, meeting college expenses and other neat things.

Prudent INVESTING in "the market" (which you can literally do through index funds--just pick which "market" you want) takes some time. I talking a minimum of 5 years here. 10 years would be better. 20 years would be even better. It seems a bit of a stretch to compare this process which may take decades to spending an evening in a casino.

[RickG]

Note also that the government does provide an incentive to shareholders to avoid extremely short-term 'gambling' on the market: the long-term capital gains tax. Tax rates are substantially lower for long-term holders of a stock. One could argue that the LTCG tax should require holding a stock for 3 or 5 years instead of one, but clearly the government treats short-term gains just like gambline proceeds and taxes them at the full rate of ordinary income.

Rick

[Lao Tzu]

I hereby announce the introduction of a new investment opportunity -- "shares" in my football team's earnings! Here's how it works: Every time we win, your shares go up in value, and you can cash in at any time. Your investment will provide important capital so our business can grow and attract new talent. Plus you will be helping to build a strong economy in the process, since we employ hundreds of people at our stadium and generate much revenue for important blue chip companies, like Budweiser. And of course your earnings can provide a stable source of income for you and your loved ones. Please read our prospectus carefully before investing. Woops, if you'll excuse me, there's an FBI agent at the door.............

[Lao Tzu]

In all seriousness, the reason stocks aren't considered gambling is because the people who make the laws are intimately involved with corporations/stocks. Gambling afficianados simply don't have enough influence in government.

The irony of states disallowing gambling is, of course, the fact that they themselves run lotteries... another form of "investing".

............................................................
"A wise government shall restrain men from injuring one another but leave them otherwise free to regulate their own pursuits." -- Thomas Jefferson

[hibernicus]

Originally posted by ftg
The stock (and commondity) markets should be only for long term investments in companies. No quick turn around buying and selling on fractions of points, etc. (And we can do it in cents now! The mind boggles on what this will do.) Stocks were originally intended as a way to raise money for corporations to expand business. We need to roll back to that concept.

The fact that the market indices swing so wildly is a symptom of this problem. Stocks markets shouldn't change 6% in a day because Kabul changes hands.
I understand you disapprove of the kind of financial transactions you mention. Maybe it's because you feel that this activity is "unproductive". But it helps to provide liquidity for traded stocks and to arbitrage out any anomalies. This liquidity is very important for companies trying to raise funds, and it's one of the benefits of your stock being traded on the NYSE rather than among a group of your friends. So you think the market over-reacts to world events? There you go; plenty of chances for you to get rich.

[Wendell Wagner]

Life is a gamble. Every day I have to decide whether to go to work. If I don't, I don't make any money and will eventually starve to death. If I do, I have to drive there (and, no, there's no public transportation to get there), and there's a chance I'll be killed in an auto accident. And it's not an insignificant risk. Remember, every year 40,000 or so Americans are killed in auto accidents, so about 1 out of 92 Americans die in auto accidents.

These are all superficial comparisons. Gambling, investing in the stock market, driving to work - they all involve risk. So what?

[micco]

Investing isn't considered gambling for the same reason that bourbon is legal and marijuana is not. The guys who made the rules drank bourbon and ran the market.

For the humor impaired, the above is obviously an exaggeration presented as a devil's advocate argument. Personally, I agree with SpoilerVirgin et al. Don't bother to flame empty space.

[Spoons]

A co-worker and I used to debate this very question.

He liked to play the stock market, and I liked to play the horses at the local track. In each case, we would do the following to decide on our investments and maximize our profits:

-- Read the daily papers for the stock tables or the racing reports.

-- Read specialized publications dealing with our respective interests (he'd read a stock publication; I would read the Daily Racing Form). We were each basically looking at past performances.

-- Discuss our prospective selections with others like us.

-- Accept or decline tips from those more in the know (stockbrokers or handicappers).

But while he would concede that we each used the same methods to make our selections, he stopped short of saying he was gambling in the same sense that I was. Rather, he was buying into an investment that may result in his investment capital growing. Of course, he may not realize what he is hoping for, or he may also lose it all, but it is an investment, and liable to risk.

My reply was generally, "I'm buying into a share on a horse. The pari-mutuel method of wagering ensures that if that horse wins, I get a share of the pool wagered on that horse. Of course, I may not realize what I'm hoping for, since the odds change, or I may lose it all if the horse loses, but it is a wager, and liable to risk.

He would say that he was buying into the investment over time. It may fluctuate over time.

I'd say that my wager fluctuated over time too. A shorter time than his, certainly, but fluctuation over time nonetheless. (For those of you who don't know, the tote odds change as wagers are placed--the more money that backs a certain horse in relation to other horses lowers the odds on the certain horse. I can buy a tote ticket at one set of odds, but those odds can and probably will change between the time I buy my ticket and the time the winner is decided.)

He could sell his stock anytime, if he could find a buyer. At a profit, preferably. I could sell my ticket anytime--to anybody who didn't feel like fighting the lines at the tote windows. For more than I paid for it, if it backed a prospective longshot.

The only difference that I could see (and that I would concede) is that my investment would be decided at a certain time. His wouldn't be, at least not in the sense that mine would.

Note that I'm only looking at this from an investor's point-of-view--that is, the decision one makes to invest in either stocks or horses, and the decision about which stock or horse to back. I'm not looking at where the money goes after the investment has been made (in his case, to the company he's invested in; in mine, to other bettors if I lose).

I see a lot of references to casino gambling in this thread, but I don't think casino gambling is really a good comparison to stock market investing. In casino gambling, the odds are set, and the outcome cannot generally be predicted based on past performance. In horse racing, you can look at past performance and daily conditions, and make an educated guess at who will win--and in the stock market, you can do the same.

Maybe this is more my humble opinion than an answer to a GQ, but given what I've stated above, I believe that playing the stock market is pretty much the same as gambling on horse racing. Except that playing the market is seen as more respectable.

[handy]

One thing most people don't notice about the stock market is that when you buy stock you are buying because you think the market is going up--yet, on the other side is someone who thinks that the market is going to drop--they are selling. A little ironic.....

I think of the stock market as 'gambling' in the form of a noun--to do something that has a form of risk; horses, etc, are gambling as a verb-- playing a game of chance.

[Keeve]

Originally posted by robo
From what I read on this forum this is not necessarily true. Yes, the initial stock offering goes to the company as investment but after that's all gone you're just buying from other investors and that money goes nowhere near the original company. I'd venture to say that the vast majority of selling and buying has nothing to do with investing in the company. This post seems to be the one closest to my own views. I have not seen anyone comment on it.

In what way does a stock purchase constitute an investment in the company? The company will NOT stand a better chance of making a profit simply because I bought their stock. I am simply taking the place of the person who I bought the stock from.

But there seems to be another factor which has not been mentioned: Dividends. Having bought the stock, I am now a partial owner, and when the company earns money, I get a share of it. (No pun intended, that's what "share" means in this context: a share of the ownership, for better or worse.) Stock prices go up when people think that think that the company will produce significant profits, and prices go down when people think the company is in trouble.

Trouble is, that's how it ought to work, but it's not how it does work.

There are a lot of companies who don't pay dividends at all. But I suppose you could say that the price goes up on the hopes that they will pay dividends soon.

The bigger problem is that most "investors" pay little or no attention to the dividends. (Some do, but most don't.) Instead of basing their buy/sell decisions on whether the company is showing a profit, they choose to buy or sell based on what they think the stock will be worth tomorrow, or next week, or next year. That's why I percieve the stock market to be gambling --- because the vast majority of price fluctuations are caused by the fickleness of the consumer, rather than the value of the product.

[RiverRunner]

In what way does a stock purchase constitute an investment in the company? The company will NOT stand a better chance of making a profit simply because I bought their stock. I am simply taking the place of the person who I bought the stock from.

Two quick reasons come to mind:

1) Stockholders have some input into how the business will be run (i.e., they can vote on certain actions the company offiicers want to undertake and they can indirectly fire the company officers if they can scrape up the votes.)

2) Stockholders often receive dividends, which come directly from the bottom line profits the company makes. The closest casino gambling comes to this is when they give out free drinks to encourage more gambling.



RR

[RiverRunner]

BTW, Keeve, I'm sorry I repeated much of what you said about dividends. I was trying to emphasize the distinction of dividends, but once I posted I realized I had left out 90% of what I had intended to say. I'll let that matter rest now.


RR

[Niobium Knight]

how about insurance isnt that gambling too?

[Spoons]

Both Keeve's and River Runner's posts reminded me of something that is probably an aside to the discussion, but is interesting, so I'll add it anyway.

In North America, racetrack winnings are usually called "prices," or sometimes "mutuel prices." As in, "The prices are posted and my horse paid $6.40."

In Australia, they are called "dividends." As in "The dividends are posted and my horse paid $6.40."

I've had no experience with going to racetracks outside Canada, the US, and Australia, so I cannot comment on what other countries call race track winnings.

But I do find it interesting that Australia uses the same term to describe race track winnings as when an investment pays off.

I also should have mentioned in my original post, as Keeve points out, that the money goes to the company only in an IPO, rather than any time the stock is traded. After the IPO, money and stock are just changing hands. Good point, Keeve, and thank you for reminding me.

[micco]

Originally posted by Keeve
In what way does a stock purchase constitute an investment in the company? The company will NOT stand a better chance of making a profit simply because I bought their stock. I am simply taking the place of the person who I bought the stock from.

But there seems to be another factor which has not been mentioned: Dividends. Having bought the stock, I am now a partial owner, and when the company earns money, I get a share of it. (No pun intended, that's what "share" means in this context: a share of the ownership, for better or worse.) Stock prices go up when people think that think that the company will produce significant profits, and prices go down when people think the company is in trouble.


Dividends are not the only way for a stockholder to make money. If the value of the company goes up and the price of the stock increases, the stockholder has earnings on paper that can be gained by selling the higher-valued stock. In many situations, it's better for the stockholders if the company uses capital for things besides dividends such as acquiring other companies, capital investment, etc.

Also, on the IPO issue, the price of shares is important to the company even after the IPO. Shares sold by investors after the IPO don't supply capital to the company, but the company may issue more shares, sell shares held in reserve, or offer stock options to employees. In each case, an increasing share price is very beneficial for the company.

[Dewey Cheatem Undhow]

Originally posted by Niobium Knight
how about insurance isnt that gambling too?

No. Insurance is a means of spreading a given risk among a large pool of at-risk people. At the policyholder level, insurance represents the trading of a contingent, catastrophic cost (the risk) for a regular, low cost (premiums).

[AuntPam]

I'd be willing to allow that betting on the outcome of a horse race based on analysis of prior performance, jockey's record, competition, and track conditions is a lot more like investing in stock than, say, playing roulette in Atlantic City. However,if you win, you don't get a share of the horse's FUTURE earnings. (I once got a "backstage" tour of Bally's Park Placxe and somebody explained how roulette wheels work, causing me to ask "But why would ANYONE play this? It's obvious that if you play long enough, you'll win about half the time,lose about half the time, and slowly bleed yourself dry when the ball falls into the house slot! That's NUTS!")

However, Attrayant has something of a point when he talks about sleazy brokerage houses. The SEC busts these guys as often as they can. We're talking raids, arrests, and jail time. However, no police force in the US, inclduing the securities cops, has enough personpower to catch every criminal....and Barnum's Rule is still in operation.

I work for a large brokerage house as an attorney--we have HUNDREDS of lawyers here whose sole job is to make sure that we only play "by the rules." You can't believe how regulated this business is!

[john_e_wagner]

(rant on) Why do people say that investing in the stock market is hard? Just buy into an index fund and forget about it. Most people lose money when they move money from one stock to another. Any gain is the taxed plus transaction fees for the buying and selling. (rant off)

Any how insurance is a lot like gambeling. (For the purchaser...for the seller it is simple stats.) The lower the risk of payoff the cheaper insurance prieums are. With a large enough group it is a simple matter of odds or the insurance companies. They simply look at what the percentage of people who will die in a group of your criterea. It is then a matter of getting enough people to buy insurance to cover the expected payoffs and profit for the company.

[Running with Scissors]

One other thing I haven't seen mentioned:

When you gamble at a horse race or in a casino, the odds are in the house's favor. When you invest in the stock market, the odds are generally in your favor (averaged over time and the various choices for investing). Plus there is all the research that you could and should be doing prior to investing. Good luck researching the past performance of a slot machine (of course, this doesn't apply when talking about sports gambling, which could conceivably be researched somewhat).

It's been said before, but let me reiterate: when you buy a stock, you're buying a part of the company. It doesn't matter if you buy it from another investor as opposed to buying it from the company itself, just as if you were buying a restaurant it wouldn't matter whether you bought it from the original owners or the person who bought it from them. You still own a part of the business.

Yes, when you get into options, things get a little murkier.

[Spoons]

Originally posted by Running with Scissors
When you gamble at a horse race or in a casino, the odds are in the house's favor.
At a casino, yes. At a horse race, no.

This is another reason why I feel that horse racing is more like stock investing than it is casino gambling.

The odds are set at a horse race by the bettors themselves. Under the pari-mutuel system, odds on a certain horse are the ratio of money bet on that horse to money bet on all other horses. The house (that is, the track) has nothing to do with setting the payoff odds. Those are left to the bettors to decide through putting their money down and backing their choices with their stakes.

What the house (the track) does do is to take a percentage of the wager pools. This way, they generate revenue on every race, no matter how much or how little is bet on it. Or who wins.

In some ways it is like the commission paid to brokers--they will make money on trades, no matter how much the investor earns or loses on the trade.

Of course you can't research the past performance of a slot machine. Or dice or wheels for that matter. Those are chances, where each roll or turn is independent of the last one, and no roll or turn affects the next one. But you can do research and make an educated guess with horse racing--thank you for the concession, Aunt Pam!

[Keeve]

Originally posted by Running with Scissors
when you buy a stock, you're buying a part of the company.If this is off-topic, I apologize. But I've always wondered what happens when a company issues NEW stock.

Suppose they initially sold 1000 shares, one share each to 1000 people. Each of those people owns 1/1000 of the company, and they start selling and trading among themselves and to others.

Now the company decides to sell 500 more shares. EXactly what is it that they are selling? Are the first 1000 shares suddenly worth only 1/1500 of the company? Can't be; that'd be stealing from the current shareholders. Are the new stocks for a new division of the company? Can't be; the current shareholders own fractions of the new division too.

What happens?

[Adil]

I would tend to agree that the essence of gambling is not really comparable to that of investing in stocks or shares.

Also, I'm not really convinced that insurance amounts to an instance of gambling. As I see it, gambling is neither based upon the principle of indemnity nor on the principle of insurable interest. To take any example, do you think that a person, for instance, gets his house insured with the intention of betting against the insurance company that his house will burn down before he pays them too much money? I don't think this would be a correct representation of the nature of the transaction. People get their houses or their properties insured not as a bet or a wager that the property would be destroyed before a specified time, but as a security against accidental loss of that property. I don't think that a person who has his house insured desires the insured event to actually materialise. I'm sure he would be as keen to avoid the accident as the insuring institution, if not more. As I see it (and I could well be wrong), this obviously is not the case in gambling. If you would take a close look at both gambling and insurance, you can see clearly, in my opinion, that the operational mechanism, the intentions of the parties involved and the results in the two cases are quite distinct from each other. There seems to be absolutely no relationship between the two.

- Adil (formerly known as "Roseus")

[sail]

1. (1000 Shares)* (Stock price $20) =Company Value $20,000
2. Company sells 500 new shares at $20 each for a total of $10,000
3. (1500 shares)*(Stock price: $20) = New company Value$30,000

It is not stealing because 1/1000th of a $20,000 company is worth the same as 1/1500th of a $30,000 company. The extra $10,000 is injected into the company by those who purchase the new shares.

[Bean Counter]

Keeve - When a corp. decides to go public, the corporation gets authorization to sell millions, tens of millions, HUNDREDS of millions of shares of stock. When the offering is made, they will not necessarily sell ALL of those shares or they will after a time purchase some of those shares back.

Stock that is owned by the corp. is called treasury stock. Stock held in treasury does not count as a vote for the company or in figuring dividend distribution. It is effectively "out of commission" until sold by the corp. to an investor.

Now to answer your question, yes, the amount each one of the original stock holders went from 1/1000th to 1/1500th. It is not called stealing, it is called dilution. By putting more shares on the market, they are diluting the value of the stock. It is sort of an "inflation" effect. More shares chasing the same corporate earnings, therefore less value per share.

It does have the affect of lowering the value of each stock if the sale is large enough and also the amount each share will receive in dividends.

Therefore I think you can see that it is in the best interest of the corp. NOT to let that happen.

[AuntPam]

Not only that, but a company can go out and buy its own stock back from the public (at the current market price, usually a lot more than the original issue price), adding it to treasury stock. Then they can sell it again later.

Really strict rules prevent the company's insiders (executives, board of directors, etcetera) from making personal profits by say, selling a lot of shares at a high price just before a stock dilution. BIG no-no!

Also, once a company is a going concern with a track record in terms of its earnings, profits, growth, ability to compete, it can get money the way you and I do: it can BORROW it. Either by borrowing it from banks (as loans) or from the public (through a corporate bond issue).

You know, once upon a time I thought finance was BORING. Then I got interested in the industry and discovered it was fascinating. The thrill of timing the market! Of closing a big merger! Of underwriting a $600 million issue of something or other!

About options, one of my favorite co-lawyers claims that the form you have to fill out to get your brokerage to let you trade options should have these words printed in very large type across the top: KIDS! DOn'T TRY THIS AT HOME!

[sleestak]

As far as the original question goes..LOL!!!

Casino's *always* win percentage wise. Yeah, a few shmucks may win big but in the long run you will *always* lose more than you win. That is how casinos make money. (I worked at Mandalay Bay for awhile, so I know who these things work). Anyone who can do simple math should know gambling is a loser. The odds are always in the casinos favor. Otherwise they all go out of business.

Stocks, on the other hand, almost always pay off for investors if you investigate, buy and hold. The average rate of return is about 10% since the depression. This year I have actually made money on the market even though it tanked. How, you ask? By research and finding bargins. Companies that actually produce something people are going to buy.

I think you have a false analogy in mind. Casinos != stock in a company that actully produces a product.

Eric

[DPWhite]

Gambling is an entertainment and an addiction. Stock market investing can be a form of gambline, as can the other investing markets.

But the real point of the investing markets is to make money over time. In stocks you are investing in the equity (part ownership) of a company. In bonds you are lending money. In commodities and insurance, you are involved in spreading risk.

Being allowed to issue stock in a publicly traded company, one that has gone through the mythical IPO (initial public offering) can be described hyperbolicly as a license to print money. You print too much and it becomes worthless, and it must be used for company purposes. It is very heavily regulated by the government.

[Doug Bowe]

Betting on a horse is gambling.
Owning the horse is an investment.
Both involve risk.
At least at the end of the day the investor still owns the horse.

[phartizan]

With the wide lack of understanding about the fact that stocks held over the long term generally rise in price, whereas gambling chits don't, no wonder US Social Security reform is going nowhere. ;)