Some people experience a lingering reluctance to invest because they suspect Wall Street is a giant casino. Most of us understand that a casino will, on average, fleece its customers of their hard-earned money. But does the market actually function like that?
In reality, a share of common stock listed on a stock exchange represents a percentage ownership interest in a large enterprise. A bond represents money loaned to an enterprise or government for the promise of stated interest and a return of the face amount on the maturity date.
Shares of a successful business or bonds issued by a solvent company tend to reward long-term holders by returning amounts in excess of the original investment. These increases may be in the form of interest on bonds or dividends on stock, plus preservation or growth of the principal invested. These kinds of investments are not like a slot machine or a roulette wheel, games rigged by casinos to pay out only a fraction of the money wagered.
The amazing thing about a share of stock is that an owner receives the same proportional benefits whether a single share or millions of shares are owned. The companies associated with Warren Buffett, Bill Gates, and the Walton family are well known to many. And anyone who wishes may invest in those companies on exactly the same basis as Buffett or Gates or
the Waltons—and enjoy the same percentage results.
(We are not recommending or advocating the purchase of any specific company to anyone, of course.)
The flawed casino analogy may seem plausible since some investors engage in short-term trading, speculation, and other aggressive tactics. But how one uses the market is within one’s control, and the practices of short-term traders have nothing to do with long term investors.
One person may use an automobile as a getaway car after bank robberies, while the next one uses a car to commute to work. The misuse of a vehicle by the robber has nothing to do with the usefulness of the vehicle to the commuter.
So for you and for us, the answer is, “NO!” the market is not a casino.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investments involve risk and may lose value.