Why do I say this? The answer
is simple.
Most forms of gambling
represent a negative
sums game.This means you are competing
for slices of a pie that has already had a chunk bitten
out of it by government, gaming institution or bookmaker.
For
example, when you play poker at a casino, you are
competing for potential profits with the other players.
Assuming that all players are equal and that all players
get equal luck over time you will all lose, because
the casino is taking typically 5% of every winning
pot.
It is not a complete (100%) pie that
you are fighting over.
If however you were playing poker
at home with your friends and the same equal skill
and luck factors applied, you would all break even,
as it would be a neutral
sums game (unless of course your ungracious
host demanded a house rake!)
What of the sharemarket? The
sharemarket is a relatively good form of gambling
in theory, because in theory it should actually
be a positive
sums game.
How can this be so?
Well in theory, more than compensating
for the relatively small amounts of pie swallowed
by your stockbroker (brokerage fees) and the government
(stamp duty), companies are supposed to be growing
real businesses, becoming larger and more profitable
over time in line with the growing economy and as
a shareholder you should share in the increasing wealth
being generated. In other words, the
pie itself is expanding! Theoretically,
if the economy kept growing, everyone investing in
shares could slowly get rich.
Notice that I keep qualifying
this with the words 'in theory'. This is because to
talk of the sharemarket as one generic form of gambling
is like talking about 'Europeans' as if they were
all the same.
Introduction
Continued
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