A question that astute businesspeople and players of casino games alike is: Why is business risk-taking called “investment” while playing casino games is called “gambling”? With the news filled every day with information about new financial investments, new markets, even new currencies on the one hand and talk about whether we should allow land based casinos where they never were, or online casinos where they never were, or betting on sports where it was not allowed before, this question seems immensely appropriate.
The question begins around the idea of risk. Whenever someone begins an “investment” program, his or her investment counselor asks how much risk they are willing to take. The entire investment portfolio will be based on the amount of risk they are willing to take.
When someone opens a casino account, there are no counselors to tell them how to bet, what to bet on, and so forth. In fact, to some extent, the only “counselors” most casino gamers read or use are tricksters trying to sell so-called sure-fire betting systems that don’t work.
Be that as it may, the fact remains that investment risk and casino gaming risk are both risk.
The recent history of banks and complex investment vehicles such as derivatives has led many to believe that casino gaming has far less risk than business investment. While this is not true, it is easy to see why so many people that it is.
In 2008 we discovered that a lot of investments carried with them tremendous hidden risks. Casino games have very little hidden risk. Facing the immense number of hidden risks in stocks, bonds, and all the permutations thereof are the two most prominent casino risks which we talk about whenever the subject comes up.
We tell all our readers that American roulette has twice the risk as European roulette. That’s because American roulette has 0 and 00 while European only has one 0.
Insurance in Blackjack
The dealer offers insurance when she has an Ace showing after the first two cards have been dealt. Almost every blackjack player knows that insurance is a bad bet. Any blackjack player who still takes insurance should be playing a different game.
Long before diversification became a political term it was an important investment term. Diversification in a portfolio is the business investor’s way of not putting all his eggs in one basket. We are endlessly told to own some stocks and some bonds and to the extent possible, to diversify into as many investment vehicles and investment markets as possible.
It is simply not possible to diversify when playing casino games. We play one game and then if we choose to do so we go on to a different game. We may raise or lower our wager but that is not at all the same as diversification.
In business terms, diversification means taking less risk.
Entrepreneurs Go All In
However, when we invest in business, we are often investing in the life’s work of entrepreneurs who have indeed put all their eggs in one basket and possibly the eggs of many family members and friends as well. So investing is an anomaly in which the average investor invests a relatively small amount in the hope that someone who has gone all in on his or her business idea will succeed.
How often do we go into a new store in the local mall and meet the young owner of a shop? If we like the owner we hope like crazy that she or he will succeed even if we have no intention of ever spending money there. When we go into a casino for the first time, the entrepreneur is faceless, possibly an already highly successful businessperson. The casino has its “profit margin” already more or less set. They call it the house edge.
In investments, if our business owner loses, we lose along with her or him. In a casino, if the casino loses, we win!
The Fun Factor
The big difference between gambling and investment can truly be boiled down to the fun factor. If we look at casino gaming as essentially a fun activity—a benign pastime—we will willingly accept the small percentage of “losses” as the cost of having fun. But it is not at all fun to invest money in a company and not know if the company will ever make a profit, pay a dividend, or give a worthwhile return on the investment. It is no fun looking back after five years and regretting not having invested in company X when we invested instead in company Y.
After five years we might look back on our time playing slots, blackjack, video poker and so on as the ways we had fun. Some people follow sports and some people work in their garden. Some people love to play slots because the creative energy that goes into making attractive modern slots is so profound.
In the United States, many states are looking to sports betting or online gaming as revenue stimulators. That may very well prove to be the case. For the gambler on sports or on slots, enjoyment and maintaining a sense of play are paramount. As a great American baseball player, Jim Tome, who was just voted into the Baseball Hall of Fame said when he was a young player who had no idea he would have such a great career: “Don’t believe the hype”. He grew up in a small town where kids learn at an early age to keep everything in perspective.
If a casino gambler fails to keep everything in perspective, he or she will surely lose the play aspect of gaming. If an investor fails to keep things in perspective, she or he will grow impatient and will never enjoy the long-term benefits of investing in other people’s entrepreneurial spirit.
The key in investing is to diversify and accepting the tension that investing inevitably entails. The key to happy gaming is to keep the gaming happy.