In this article we will look at the hidden ways speculatiin which gambling creeps into trading practices, as well as the stimulus that may drive an individual to trade and possibly gamble in the first place. He must be in control of his life.
Applying Newton's Fourth Law. Bank secrecy act internet gambling, July 25, Buffett on Gambling and Speculation. And I said there are legitimate uses for hedging out the long positions and so on.
But I said, overwhelmingly, it's going to become a gambling vehicle. And I would distinguish between speculative and gambling. Gambling involves, in my view, the creation of a risk where no risk need be created.
Now, obviously, if you plant a crop in the spring and you're going to harvest in the fall, you are speculating on what prices are going to be in the fall for your corn or oats or whatever it may be. And you may lay that off on some other speculator.
But that's a risk that the system has to take. You can't grow it in one day. But when you start wagering on — well, on stock index futures, I think that gambling instincts are hamrful strong in humans. It's worth noting that, with all participants considered, investing need not be a zero-sum game.
In contrast, the very nature of gambling can be no better than zero-sum while speculation, in aggregate, adds nothing but incremental and often unnecessary frictional costs. Well, it seems the latter two things are now swamping the former in the current market environment. As a result, the gamblingg in its current form is less capable of performing its essential functions.
In fact, market prices are frequently nonsensical. Financial markets have been and will likely always be rather programme tournoi poker casino gruissan and depressive in nature. It's hardly a new problem.
Mood swings in markets will, almost certainly, continue to produce substantially mispriced marketable securities from time to time. In one year, the high will double the low. These businesses speculation is desirable but gambling is harmful no more volatile than a farm or an apartment block [whose values do speclation swing so wildly].
In any case, they're certainly not always the coldly calculated types some seem to imagine. I just think modern financial markets have developed in a way that, if anything, unnecessarily amplifies this nature. The holding period for stocks is at speculation is desirable but gambling is harmful all-time low for the first time measured in just a few hatmful after being measured in multiple years for most of the past century.
So there are more short-term oriented participants than gamling, fewer owners. We benefit from a system that as often as possible produces market prices approximating the discounted value of what assets can produce over its given life. To me, that begins with having more market participants grounded first and foremost by the intrinsic value of underlying assets and fewer making short-term bets.
There's certainly nothing inherently wrong with speculation in fact, having a certain amount of short-term oriented participation is vital but, as in pretty much any healthy system, proportion iz. There will always be certain assets where it's challenging to estimate value.
For example, new business startups in highly dynamic industries. Those sorts of assets will naturally have a whole range of possible values. Well, there will inevitably be speculative bets on who the winners and losers are likely going to be and it's hard to see why or how it would be desirable to reign that sort of thing in. Yet, the mispricing of assets for extended periods of time leads to the misallocation of capital and other resources.
Ultimately, that likely throttles potential wealth creation. It sure seem that modifying incentives and some other wise desiragle to encourage more long-term investing and less speculation and especially pure gambling makes sense. Maybe there'd be fewer and less extreme mispricing in the capital markets. That would be a good thing from an overall system perspective even if it makes life more difficult for individual investors who attempt to profit from mispriced marketable securities.
Something both Warren Buffett and John Bogle have called for formally in recent years. Gambling, even when frictional costs are ignored, is no better than a zero-sum game. Speculation isn't, at least in aggregate, much the same. Investment need not be. Your mistaken professors were too much influenced by 'rational man' models of human behavior from economics and too comic standing mystic lake casino by 'foolish man' models from psychology and real-world experience.
Gambling is also less than zero-sum whenever frictional costs exist. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser speculation is desirable but gambling is harmful familiar with the individual circumstances before making any investment decisions.
Posted by Adam at BuffettGranthamMunger. Newer Post Older Post Home. Origin of Newton's 4th Law? But Sir Isaac's talents didn't extend to investing: He lost a bundle in the South Sea Bubble, explaining later, 'I can calculate the movement of the stars, but not the madness of men. For investors as a whole, returns decrease as motion increases. Find good businesses; buy at a nice discount desirble value; stay within limits; stick to what's understandable; minimize trading, frictional costs, and errors of all kinds.
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It's about investing with a comfortable margin of safety. It's NOT about speculating on price action. In the near-term, or even longer, the market price of an asset can do just about anything. A temperamental market pretty much assures it. Those with a long investing horizon, it's worth noting, actually benefit from lower stock prices in the near-term though not many market participants seem willing to put this truism to effective use.
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It's easy to overemphasize the former and forget the latter. The focus here is on minimizing trading, frictional costs, and errors of all kinds; it's on staying comfortably within realistically assessed limits. First and foremost is the view that an investor should never make a specific investment based upon what someone else thinks. In other words, what makes sense to own is necessarily unique for each investor and it'd be unwise to not act accordingly.
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Notable Quote "Warren and I have not made our way in life by making successful macroeconomic predictions and betting on our conclusions.life when he should not speculate: when he can't afford it, and when he can.” Here is how some think: Since the Roman soldiers were bad guys and they I would argue that this was not gambling but the “casting of lots” to determine .. NIV - There is desirable treasure and olive oil in the dwelling of the wise, but a. The pernicious effects of speculation, both on the individuals engaged in it and there is but little difference between a speculator and the gambler who is led on to raise silk, and thinks it desirable to have say one thousand mulberry trees. Investing, gambling, and speculation may seem similar but only if they to see why or how it would be desirable to reign that sort of thing in.