“Gamble” Or “Investment”?

We have all had those conversations, right? People who know us, like us but just don’t ‘get’ us.

Sometimes it makes you wonder yourself…

Investment or Gamble?

Investment or Gamble?

 

I was catching up with my friend Stuart the other day, we had not seen each other for a while. He commented on how busy I appeard to be. So I launched into a passionate spiel about all the things I am doing right now:

“I am launching a business this month that helps business owners mobilise their website; and I am putting together a seminar that I hope I will be able to present for Fairfax Media to their clients; and I am putting together a couple of workshops that I hope to be able to start taking in March; so the sales funnels for them need to be ready by the end of January. Oh and my new book, which I am really excited about should be ready for release in Feb, that’s what the workshops are based on”

I paused for breath.

Stuart looked at me as if I had just landed from another planet.

“You have a job right?” he said

“Yes”, I answered, “but there are a lot of restructures going on and recent technology changes means my job is likely to disappear in the next 6 months”.

“All this stuff you are doing, it is costing you money right?” Stuart asked.

“Yes”, I couldn’t help the pained expression on my face, “That’s why I am putting all this effort in, I am a bit worried actually with the financial obligations I have brought on to do all this. I need to generate revenue by March or I will be in trouble.”

Stuart shook his head in disappointment. “So what happened with the Employers Lifeline site you were doing a few months ago?”

“Well, yeah my business partner got a new job, so that is benched until I find a new business partner who is interested in Employment Law” I answered sheepishly.

“And what about the Android app you made?” Stuart pressed.

“Well it has been downloaded by between 100-500 people so far, and has good reviews”

“So how much money have you made off that?” Stuart wasn’t giving up.

“None. It is a free app, but the experience, and what I learned from making it was well worth the couple of hundred dollars I paid. I couldn’t have done a seminar that taught me that, and certainly not for a couple of hundred dollars.” I replied defensively.

“So why do you think these new gambles will be any different?”

 

-And there it was.
Reverberating like a fallen church bell.
Was this all a gamble? Would I actually be better off just taking my investment money and visiting a casino?

The conversation changed, and we parted amicably, but the question of whether I was gambling or investing stayed with me. I have thought about it in some depth, and I have reached a conclusion.

For both Gambling and Investing the goal is the same; to put in as little money as possible and take out as much money as possible. The first thought about differentiating the two is around skill, you need skill to invest right? But that logic doesn’t really hold up, there is skill involved in picking a winning race horse, or playing a game of cards.

 

I now believe that the difference between Gambling and Investing comes down to Value.

Specifically adding value.

You see a gambler applies skill to something that is happening outside of their control or influence. Whereas by my definition an investor is someone who adds value to the process through their control or influence over the process.

Look  at the horse race for an example. For the punter at the track, betting on a horse is a gamble. Sure someone who knows a lot about horses, and understands recent form has enough skill to give them the edge and make a better bet, but it is still a gamble.

But on the other hand for the same horse in the same race that ‘bet’ is not a gamble for the trainer, owner or jockey. For these people it is an investment. The owner has influence, he has chosen the trainer and jockey. The trainer has influence over the training and diet of the horse, and the jockey has influence over the strategy of the run in the actual race.

In my case, I am choosing things that I believe I can add value to, that will be more effective or profitable with my involvement than without it.

But it is a two-edged sword.
By my definition day-traders are gamblers. -They may not agree.

In fact almost any business proposition could be a gamble or investment depending on how you approach it. If you buy a house to rent out, it could be a gamble if you are just buying it and keeping the present tenant and management company, without any intention of adding any value yourself.

Or if you intend to do it up a little, market or manage it in a different way this adding of value would make it an investment.

Having thought this through I like my definition. I believe that it is a useful way to look at things, and will help me in future. And I have to thank Stuart for making me think, even though he still doesn’t  ‘get it’ (or ‘get me’).

But what do you think? I am interested to hear your opinion on this. Do you think this is a useful way to approach investments, seeing what value you can add through your influence on the process? Or do you feel this is too simplistic?

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About Chris Hanlon

Chris has worked in or owned small businesses most of his life, before lured into the corporate world where he spent over a decade. However his passion for small business has remained, and taken life in The Profit Wizard blog, his published book, and some coaching he does for a variety of businesses. You can follow Chris on Twitter @TheProfitWizard

One Response to ““Gamble” Or “Investment”?”

  1. paul December 7, 2011 at 11:29 pm #

    Chris always remember luck only happens when preparation meets opportunity opportunities ,only appear when you open your mind to all the world has to offer .

    There is no difference between Phil Ivey a top world-class gambler and Warren Buffett, the famous investor as they both put the effort in ,to constantly gaining knowledge and understanding of the various complicities of their endeavours,

    this is what ensures their success, their knowledge which gives them the skill of knowing when to apply it

    It is exactly the same between the rich and the poor which is the focus of the” occupy” movements that are spreading around the world they 99% are wailing we want more of what you have and waving placards emphasising their demand

    The ! % gave themselves a sound financial education, about how the money systems actually work and are gleefully playing the world financial crisis and making a killing

    Because the reality of crisis it is not about the countries or the people it’s about the banks

    Every decision you make is a gamble, it becomes an investment when you add knowledge, and knowledge improves the chances of the investments success

    Knowledge thus gives you the ability to recognise an opportunity when it presents itself

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