Be an Investor, Not a Speculator

Investing is expecting positive returns whereas speculating is hoping for positive returns.

— Eugene Fama Sr., Nobel Laureate in Economics

Understanding the difference between investing and speculating can make a significant difference when it comes to growing your money over time. Casinos understand this difference well — it’s the foundation of most of their profits.

Any casino game has two parties: the speculator or “gambler” and the house or “investor.” Both play the game, but only one is truly investing. Why? It comes down to the odds. At best, gamblers have a 47% chance of winning. They can do little more than hope for a positive outcome. The casino, on the other hand, knows better. They know the odds are in their favor. If they stay disciplined, they win.

Unfortunately, most investors are actually speculating when they think they are investing. They hope for great returns by trying to predict the stock market or find the latest hot stock. These are NOT proven strategies to win, yet people try them every day.

The key to investing is to act like the casino, not the gambler. Diversify across thousands of securities. And don’t try to predict markets (or the next hand). Over the long-term, history has shown that these behaviors may improve your odds of success.