Mutual funds do have decent probability of success and that probability is increased the longer you stay invested in the fund. But the trade off is that they have a lower reward/risk ratio. You are risking a lot to make a little.

Move into some options trading products and you can create positions that provide any possible combination of reward, risk and probability. You can risk a little to make a lot, but of course your probability goes down. Or you can do higher-probability trades that have lower reward / risk. Is it gambling to get involved in these products?

Move from there into the high-flying managers at Bear Sterns who leveraged themselves 90/10 on debt and collapsed when their underlying instrument (housing) lost value. Was that gambling, or was it money management? What about the people who invested in the products those managers were managing? Were they gamblers, or were they investors that just got unlucky?

As we head down the spectrum toward casino gambling or lottery playing, what makes the difference and at what point does it move from respectable to deplorable? It all has risk. It all has reward. And it all has probability. Where is the good and where is the bad?

I’m not just trying to be difficult here, I really am trying to work through this. Thanks for your feedback. Any more thoughts?

Take any 10-year period in the stock market’s history, and you see that it has earned money every time. Any 5-year period, and it’s earned money 97% of the time. That’s not that much of a gamble, if you’re a long-term investor.

I will say I like this line:

“If you’re going to place bets with casinos, you’re most probably better off betting on their stocks than on their tables.”

It brings up an interesting thought — that is, casinos are only a game to those people walking through the door. To the casino owners (i.e. shareholders) they are a business, and a highly calculated one at that.

I’ll feedback more after a bit. Anyone else have thoughts to share?

1. Odds. The odds of losing everything in a passably decent mutual fund is extraordinarily low. The odds of losing everything in a casino is 100% on a long enough time line. The stewardship involved in investing in a fund vs. going to a casino is substantial.

2. The underlying elements you’re ‘betting’ on. With funds, you are gambling on a) an economic system with a proven track record (the ethics of that system are immaterial in this case) and b) a fund manager’s ability to select companies that will thrive in that economic system given current economic realities.

The probability of capitalism collapsing and the manager only picking companies that go bankrupt very quickly is very low on any kind of reasonable investment timeline.

So with funds, you’re hoping your outcomes are CONSISTENT with the odds.

With casino games, you’re betting that you get lucky. Playing blackjack out of a 1 or 2 deck shoe while using basic strategy and counting cards is about the only way you can walk into a casino with the odds even slightly in your favor.

In most cases, the odds are dramatically against you. So with casinos, you’re hoping your outcomes are INCONSISTENT with the odds.

Again, bad stewardship in the case of casinos.

Investing in funds ends up looking like good stewardship. Going to a casino looks like horrible stewardship.

If you’re going to place bets with casinos, you’re most probably better off betting on their stocks than on their tables.

I’m sure there are other considerations, but those are a couple of pretty straightforward ones.