“There is no more fatal blunderer than he who consumes the greater part of his life getting his living.”
–Life Without Principle by Henry David Thoreau
PARADIGM SHIFT
Smart Investing Is Not Gambling
American author Henry David Thoreau lived through the California gold rush of 1848-1852.
This spectacle led him to criticize the frenzied thinking that had overtaken many Americans at that time:
“The rush to California, for instance, and the attitude, not merely of merchants, but of philosophers and prophets, so called, in relation to it, reflect the greatest disgrace on mankind. That so many are ready to live by luck, and so get the means of commanding the labor of others less lucky, without contributing any value to society! And that is called enterprise! I know of no more startling development of the immorality of trade…Did God direct us so to get our living, digging where we never planted — and He would, perchance, reward us with lumps of gold?”
In essence, this was a gambling mindset that took hold of the population. When there was the slightest hope of getting something for nothing, people tore up the ground with the hope that they might be among the lucky few.
I’ve been asked by clients in the past: “Isn’t investing just gambling?”
The answer is a resounding no.
Here are the two reasons.
- Gambling always involves betting against the odds. One is playing with luck and testing it. The more one gambles, the more likely they are to end up with a net loss.
- Gambling offers a limited benefit to society by offering entertainment and (typically false) hope. But the net effect could be argued as a net negative effect on society.
Smart, diversified investing is completely the other way around.
Once you’ve diversified away the non-systematic risk (company-specific risk), you can invest long-term with the odds extremely strong in your favor.
The longer you invest, the more likely you are to make a lot of money.
Investing also provides an absolutely crucial benefit to society. It places capital in the hands of companies that are deemed most likely to meet the wants and needs of individuals in the years ahead. Rather than letting your money lie unused in a bank account, you’re essentially employing it to be used for innumerable valuable purposes that serve your fellow human beings.
Smart investing keeps the economy moving forward and makes the world a better place for everyone. And you directly reap the benefits of it over the years!