[sliverstorm]

Investing has a luck component to it as well.

The way I like to think of it is, it's gambling when your expected rate of return is negative or zero. It's investing when it is positive.

This is why a gambler is gambling, but a casino is investing/running a business.

[DennisP]

Good point, but an even better definition would take variance and risk of ruin into account. If you just look at expectation, then buying insurance would qualify as a gamble. I think most people would say it's more of a gamble to skip insurance.

Betting all your money on one hand of blackjack is a gamble, even if you've been counting cards and know the odds are in your favor. A casino spreading its money over millions of small bets is investing.

[sliverstorm]

That's a good point, and I will have to incorporate it in my example in the future.

[cookingrobot]

Gambling and market speculation (and even theft) are related in that they're all 0 sum games. Every dollar you make is a dollar someone else wishes they hadn't lost. Investing is different in that when you win and earn a return, nobody feels that they lost.

[joosters]

How about all those people who sell shares and then see them shoot up in value? They certainly feel that they lost.

[dragontamer]

Indeed.

The best example would be bonds. If you buy the California Bonds... the people of California may get a High-Speed Railroad within a year. They will not be able to accomplish the building of the High Speed Railroad without investor support.

30 years from now, the state of California will finish paying off your bonds. And you'll make some money.

Win/Win for everyone. Investors make money, and California citizens get High Speed Railroads today... instead of 30 years from now.

[joosters]

What is your expected rate of return from a horse racing bet? It's certainly negative if you pick a horse at random, but what if you chose the horse based upon form, conditions, odds and so on? It's still gambling, but you cannot prove that the expected rate of return will be negative in this case.

There are people who make a living from this, just like there are people making a living from investments. Likewise, there are lots of people that lose at both.

[Atroxide]

nicely put, never thought of it like that.