Are you investing or gambling?

That is a question so many of us wonder whats the difference. Investing and gambling, they're almost the same thing, aren't they? Many have asked that question. But there is a world of difference between the two. Gambling is an acitivity where the odds might not be on your side, whereas investing is a form of activity where the winnings are almost guaranteed.

When one gambles, one hopes for the win, although there is no certainty that one will win. When we buy a house, we are actually gambling on the fact that the house is going to be leased to tenants, and that income is going to flow in. We invest in a house when we know that when we buy the house, there is going to be a 10-year leasehold from the government renting the place.

See the difference yet?

No doubt we all gamble at one stage or another, or have taken some risk involved in some game where we know that the win is left for chance. Investing, on the other hand, requires an absolute believe that the asset we are putting money into will indeed provide a return to us over the long-term. I say long-term because if we 'invest' over the short term, nobody will know what the sharemarket is going to do next, but we all know that over the long-term the sharemarket is trending upwards.

Investing in a business hence requires alot of research and knowledge of the business itself and the point in time in which we invest in it, where it is heading and how it is faring. Buying into a speculative situation is gambling. We are gambling that new news will spark the public's interest and which would push the share price upwards. But for investors, they know that they are going to make a profit and it is just a matter of time.

A fact is nobody ever knows everything about a business, or about anything in particular. Hence, we're all risk takers and a part of us no matter how big or small is a gambler. No investor can claim that they are 100% investing. A concept does come into play now called risk-tolerance. Each of us have different risk-tolerance, whether we want to admit that we wouldn't be too brave jumping out of a place or going bungee jumping in New Zealand. Younger people tend to have a higher risk tolerance and older people lower risk tolerance.

It is important that each investor takes his/her time to find out his/her risk tolerance as it would mean gathering a sound portfolio over time over which the investor is comfortable with.

What is your risk tolerance?