One of the most used and thrown around term when it comes to investing is ‘playing stocks’.
Usually, people think that playing is the same as investing. However, there is a huge difference between the two.
As we all know, Singapore’s financial industry is very active. With this, there are a number of people exposed to
investing speculating. While there are some who are good at it, there are others who fail.
One reason for this is the misconception of ‘playing stocks’.
So before you fall into this pit, we have here in this article the necessary information you need to know about investing. Specifically on why you should not ‘play’ stocks but invest in it.
What is "Playing" Stocks?
Playing with stocks involve high degrees of risk. Like gambling, playing stocks seems more like a recreational activity. In short, playing stocks do not take investing seriously.
If you do this, there is a high risk that you’ll fail in your investments. Playing is a “chance” opportunity. You’ll either be the loser or the winner. Either way, you’ll most definitely win and lose along the way.
To further learn about this and check up on whether you have actually done this, let us tap on “speculative stock” and “gambling”.
What is Speculative Stock?
As with playing, speculative stock is investing on stock with a high degree of risk. This is usually preferred by those speculators for their high-reward and high-risk characteristics. As such, they are “playing”.
These stocks usually have very low share price and often trade on smaller exchanges. People who do this are those with a high tolerance for risk. They have higher chances of losing the full amount invested.
What is Gambling?
In relation to stocks, gambling, as defined in Investopedia, is staking something on a contingency. A contingency, on the other hand, is a potential negative event of which is unpredictable.
This definition does not do “playing stocks” any good. Nevertheless, there are still a number of people who unknowingly find themselves gambling instead of investing. A reason for this is called “social proofing”.
Social proofing refers to the social pressures induced by people in the financial markets to those who have no interest in them to trade or invest. For those who are part of the latter who give in to these pressures without a full understanding of investment, they are most certainly gambling.
How to Identify if You are Playing Stocks
If you have no idea whether or not your are gambling or playing stocks, then take note of the following tendencies and assess yourself:
#1 Doing It For The Excitement
When you decide to invest just for the thrill of it, then you are most likely entering the game without any knowledge. Rather than investing in a methodical and tested way, diving in deep directly could result to failure.
And if the excitement is only stirred from social proofing or to impress your circle, then you might have a gambling tendency.
Playing stocks is much like gambling, which is going into investing with uncertainty just for the excitement and fun.
#2 Making a Quick Buck
As with playing, we all want to win. Likewise, when you play stocks, you are only on it for the gain.
Playing is always about making quick buck off the stock market by profiting on the price movement of stocks. Its only goal is to gain; and it isn’t usually a very patient process.
On the other hand, when you say invest, you are looking for a long-term fundamental relationship with a company or a group of companies.
You will have to willingly wait for your investment returns as over time, the stock prices follow the company business’ performance.
Therefore, playing is short term while investing is long term. The former only looks at the prices and the quick gain. The latter looks at the underlying business.
Preferring to play rather than to invest will most likely make you feel frustrated. You should always prefer to develop and foster a better financial literacy for yourself by learning and choosing to take the time to invest.
What is the difference between “Playing stocks” and “Investing”?
Now, let us clearly draw the line between the two. Here are the important things you need to know:
#1 Investing is Good; Playing is Bad
This strong statement applies to a number of things. And yes, we must also make room for doubts and opposing opinions. But for the sake of contrast, it is therefore necessary to do this.
On the side of investing, investing is deemed as the better one since it can be seen as a way for investors to help companies succeed. They are the one who provide the capital for those companies to accomplish its goals.
Through investing, you are helping the cause/s of the companies you believe in. This means, when you invest, you are actually considering what you think will have a positive effect such as for social, health, and environmental improvements.
On the other hand, playing is more self-serving. While it contributes, the main purpose is that it only seeks for quick profit. A person who plays stocks tends to just trade on whomever it sees that can help them make quick buck.
Also, when you invest, the odds are more likely in your favour. When you speculate, you rely on luck.
#2 Playing Stocks can be Destructive; Investing can’t
As stated above, playing stocks is much like gambling. And with gambling comes the possibility of being addictive to it, which could be destructive.
People who may be in too deep with this tend to check their portfolios on a daily or, to an extent, hourly basis. They are also most likely to jump in and out of stocks more often that they are aware of.
Contrastingly, when you invest, you are more calculative with your choices and don’t jump to hasty conclusions.
#3 Investing is Business; Playing is for fun
Finally, one of the most important things to point out is that when a person invests, they mean business. When a person only wants to know how to play stocks, they do it for entertainment.
Investing serves a purpose. It is more urgent and sincere. It could either be for retirement or to reach specific goals. Investing is more serious and done more cautiously.
Playing stocks is solely for entertainment. It does not take into consideration the possible outcomes. It is in it for the action and the thrill of luring a big return.
This in itself should be avoided if you want to be taken as a serious and trusted investor.