Frank Knight, in his book published in 1921, entitled “Risk, Uncertainty, and Profit” makes a clear distinction between risk as defined as something that can be measured and uncertainty as something that can not be. This is a handy difference to compare gambling to stock investing.
We may often hear phrases such as “The stock market is just gambling.” or “As an investor, I have x number of dollars in play.” Just as likely you might hear phrases like “Don’t bet against the market” and “I bet the market was going to go up, and lost.”
Just as there are different games one can play at a casino there are many different ways to financially invest.
Since we can measure risks but not uncertainty we can do things to lessen risk in the stock market. We can’t do the same for uncertainty.
Uncertainty is what it is. What we tend to forget is that when someone is gambling the odds or “risks” are numerically in favor of the house and can not be changed. If we play often it is certain that we will lose. If we play often enough then its certain that we will lose everything .
In the stock market the odds aren’t fixed. We can do things that mitigate or lessen the odds of losing and increase the odds that we will win.
When someone says that the stock market is to risky for them often what they mean is that the outcome is too uncertain.
Now I have to ask, is the certainty of financial obscurity better than the risk of stock trading success?
Patrick
