“Please, call me 2020.”
(Investing vs. Gambling)
December 4, 2020 by The Q.ai Team
Is it silly to say that we missed you? We all took a collective exhale on Tuesday this week because it’s the final stretch of 2020, the most hateable year ever.
This Week’s Biggest Headlines
- AMC has a new marketing strategy and only time will tell whether it’ll work. The company claims that if people don’t buy their stocks ASAP, it’ll go bankrupt. It’s no secret that theaters have suffered at the hands of the pandemic, like many industries that typically involve the occasional shoulder-to-shoulder contact with strangers (we miss you, Disneyland). AMC plans to sell up to 200 million shares and is estimated to offer a price of $4.22 per share. In response, stocks have since dropped 69 cents to $3.63. Read more.
- Ryan Reynolds produced a new ad for Match and it almost makes up for the dumpster fire of a year we’ve all had. Spoiler alert: there is a literal dumpster fire in this ad and it rages as Love Story by Taylor Swift plays in the background. This was the first ad from Maximum Effort, the production company owned by Ryan Reynolds (think: Deadpool). Read more.
- Intel is in hot water with its own shareholders. If this isn’t an investment-related headline then we don’t know that is. Shareholders of Intel are suing its CEO, officers and board members and allege that the company intentionally misrepresented the timeline for its latest chip release. We covered this a few weeks ago, but this is exactly why the SEC exists: to protect shareholders from company’s being shady. Read more.
- Salesforce has acquired Slack for billions of dollars. $27.7 billion to be exact. This is the largest Salesforce acquisition to date. The second largest is not even close (it was half the size). This ups the ante for Microsoft, who decided to go after Slack with its release of Teams. Does anyone care that Google has Google Meet? Read more.
- A 21-year-old’s Supreme collection is being sold through Christie’s for $2 million. If you haven’t heard of Supreme, the brand would actually be cool with that. Supreme doesn’t thrive from mass appeal, but rather its niche audience of fashion enthusiasts who collect limited release clothing and apparel. At the sticker price of $2 million, this 253 shirt collection averages to over $7,900 a piece. Even the person selling his collection says that the price is ridiculous. Last month, VF Corp bought Supreme for $2.1 billion. Read more.
- HPE is sick of Silicon Valley and isn’t afraid to say so. Silicon Valley didn’t always have its name. At one point, 81 years ago, the place that birthed Hewlett-Packard was simply “a rented garage in Palo Alto.” It was the massive success of this company, and subsequently other semiconductor and computer-related companies, that warranted its naming in the ’70s. And while tech can be credited for California’s massive GDP (which, by the way, would be the 5th largest economy in the world if it was its own country), high taxes have been the main reason for the industry’s version of an exodus. Many companies, including HP’s enterprise arm Hewlett-Packard Enterprise, are leaving Silicon Valley altogether. Read more.
- Uber has been given the greenlight to acquire Postmates for $2.65 billion. This comes after DoorDash – arch nemesis of Uber Eats – announced plans to IPO. This is an all-stock deal, which means you’re trading equity in the company in exchange for an acquisition. This is usually positive because shareholders are foregoing receiving cash and are instead banking on the stock to increase in value after the sale. Read more.
Let’s not forget “the usual”
- Pfizer vaccine gets approval in U.K. This is the first country to move forward with distributing a COVID vaccine. Britains can expect to receive the vaccine as soon as next week. Similar to how the U.S. plans to approach its vaccine distribution, health care workers, nursing homes and the elderly will be among the first to receive it. Read more.
- There are now over 200,000 of coronavirus cases being recorded each day. It’s predicted that nearly 20,000 people could die just from Christmas week. If you really love your fam, it might be worth celebrating Christmas in July (which is a real thing btw). Read more.
- The economy added 245,000 jobs in November. This is the slowest month of growth since our recovery began in Spring, and it has unfairly targeted low-wage earners which is still seeing a 20% decline. Read more.
The Difference Between Investing and Gambling
Investing and gambling are activities that weigh risks against return in an effort to see financial gains. However, while both produce a chance that you’ll lose your capital, one of them is far riskier than the other.
Investing and gambling appear to be similar activities on their faces. Essentially, you’re throwing money in a pot and praying that you see a return on your capital, risking your pocket change (or your life savings) for a chance at riches. However, no matter what your Old Grandpa Ed tells you, there are several key differences between investing and gambling.
Investing is where you buy and sell stocks and other assets with the intent of seeking financial return. Gambling is where you stake capital on the outcome of a particular event.
The odds in any gambling activity are stacked against the gambler. In fact, gamblers are often lucky to win back what they bet, let alone see a profit.
Investing has a decent chance of generating continuous returns, as long as you invest wisely and leave your money to work.
Risk Versus Return
The concept of risk versus return is one of the basic tenets of investing. Usually, lower-risk investments generate lower returns, while higher-risk investments offer bigger profits – assuming you don’t lose your entire investment.
It’s important to note that risk and return fluctuate across assets and asset classes. For instance, blue-chip stocks like Microsoft will have vastly different risks than a department store like Macy’s. This variety is one of the reasons that investors tout the benefits of diversification, or spreading your capital across sectors and asset classes to minimize potential losses.
Putting Money in the Pot
Every investor has to decide how much they want – or can afford – to allocate to their portfolio. Some individuals may take a chance with their entire life’s savings. Others may stick to religiously devoting $50 a month for years.
Looking at a company or fund’s market performance, underlying financial data, and their mission and leadership should inform your decision.
The Mathematical Advantage
Did you know that your chances of hitting your lucky number in roulette sits round 35 to 1? And that, by going for a second round, you decrease your odds of winning to 1 in 1,225?
While long odds don’t mean gamblers can’t win, they do mean that a gambler’s chances of seeing their capital again reduce drastically with every play.
On the other hand, your financial investments maintain a vested interest in seeing you do well. After all, your stock goes up when the companies perform well over time. Thus, while not every investment generates returns year-over-year, your odds of “winning” actually go up the longer you participate in the market. On average, a well-diversified investor will see up to 10% returns annually.
Another key difference is that investing allows you to limit your losses at the earliest sign of danger. For instance, you can set a stop loss, or an order to sell your investment, as soon as it drops beneath a preset price point. While you’ll still take a financial hit, you can cut your losses early and retain the bulk of your capital.
On the other hand, what you wager in gambling is what you lose in gambling. So, if you bet $10,000 on Lucky Day at the racetrack and he comes in dead last, you’re out $10,000. There is no stop loss to save you from a risky bet – no matter how great the potential reward.
The Flow of Information
With investing, all relevant financial information is legally required to be available to you. Use this information. The company issuing the stock will put out a financial report once every quarter – a report which will promptly be digested by dozens of analysts offering their interpretation of the data’s context.
Just like how (successful) sports betters research their favorite teams, investors should research their investments before making a decision.
Time and Your Capital
Gambling is almost always a short-term event. You play a wager on an activity, game, or outcome, and when the outcome has been realized, you either win big or accept your losses.
With investing, on the other hand, it’s not uncommon to see an individual hold an asset for years, or even decades, while the asset appreciates. In the stock market, time provides another valuable advantage to investors: compound interest, or the interest you earn on your interest.
Furthermore, those investors who buy bonds and dividend stocks may see profits from their investments both immediately and in the long-term. While the dollar amount may seem small, accumulating hundreds of stocks and reinvesting your dividends can generate larger returns over time.
The Bottom Line
Investing is a long game of hold ’em. If you wait for the right hand, the pot will be worth going all-in for. Some investors don’t like sitting a hand out and is always on the move. Those investors expose themselves to more risk than those who do their due diligence before taking a calculated risk.
To keep yourself in check and avoid the fear that your next investment decision is a bad bet to make, research the company and review the numbers. Don’t rely on the hot tip your neighbor is telling everyone about. If you’re hearing about these investment ideas from multiple people, it’s probably already too late to get massive returns.
Ryan Reynolds is a brand marketer’s dream come true. Whether he’s newsjacking the blowback from that one awkward Peloton ad, or collaborating with a dating company for a highly relatable end-of-year ad, he’s been able to boost his brand (and the companies he has a stake in) using humor, creativity, and impeccable timing. If you haven’t seen his Youtube channel yet, you’re welcome.