The unfortunate “gamification” of investing

A certain element of the public and media has always unfairly equated the stock market with gambling or casinos. This mindset likely stems from those who have misconceptions about the stock market, traders who had a big loss after pursuing a hot stock tip or from casual observers who feel this way because of the types of narratives the media presents around the stock market.

In some cases, the media portrays stock market winners like someone who just got lucky on a roulette wheel. In other cases, the media interviews people who lost money in the latest fad — cementing the impression to casual observers that the stock market is rigged against them like a casino.

The sense that buying stocks is just a game and the stock market is a casino seems to have been amplified lately with all of the social media and news attention around the massive stock price swings in GameStop, free stock trading on phone apps, stock tips on TikTok and the ongoing attention to Bitcoin (see our take on Bitcoin here).

Of course, there have been some people who got rich in Bitcoin, the GameStop price surge or the latest fad, but it’s much more likely that the average retail investor who dabbles in stock trading has lost money and is left feeling like the system is rigged against them. The very fact that some people do get rich quickly largely through luck (like a casino) is what draws media attention to these situations in the first place. This then plays on our natural greed and fear of missing out on fast, big returns. “If they are getting rich, so should I!”

Why the stock market is NOT like a casino

The reality is that the odds of being a successful investor earning positive returns in the stock market are very high. Comparing the stock market to casinos is like comparing an apple to an aardvark — they are entirely different.

You can be a big winner in the stock market by literally doing nothing. Since 1926, the S&P 500 Index has been positive roughly 75% of calendar years; only about 25% of those years have produced a loss.

As the chart below reflects, the longer one stays invested in the market, the higher probability of positive returns. Holding the market for as little as five years produces an 88% probability of positive performance, and every 20-year period has provided a 100% probability of positive returns. Those are fantastic odds of success compared to a casino where the odds for every game are stacked against you!

S&P 500 Index

It’s all about time in the market, not timing

One critical lesson here is that it is the time in the market that is the key to success, not timing the market. If one wants the thrills of a casino, holding stocks long term probably won’t provide the same dopamine rush as gambling. However, if one wants to significantly increase the probability of positive returns, history shows that the longer one stays in the market, the higher probability of success. This is true because by owning stocks, you own shares in real companies whose goal is to generate cash flow and wealth over time. This is the opposite of a casino, where you are primarily hoping for luck, and the odds are worse the longer you play.

Keep in mind that since 1928, U.S. stocks have produced an average annual return of about 10%.1 So not only do you have relatively high probabilities of success over time, but also the rate of return has been significant. Of course, investors must also accept the roughly 25% of calendar-year declines as a normal aspect of the way stock markets work — as painful as those times may be.

Pursuing long-term success over short-term fads

Another critical lesson is to ignore the media hype over the latest fad or company with a soaring stock price. There will always be a few people who get lucky and get rich quick, but evidence shows that the vast majority of day traders lose money.2 The conclusion of a recent study: “Large increases in Robinhood users [a free trading app] are often accompanied by large price spikes [in a stock] and are followed by reliably negative returns.” Translation: traders pile into a stock going up in price, which is followed by the traders losing money when the price invariably goes back down.

Investing is not gambling. It’s not a game where we hope to get lucky with a lottery ticket. It’s about owning shares in companies around the world whose goal is to generate cash flow and wealth over time. Investing is a process for the long term. One with discipline and patience that is highly correlated with positive outcomes over time.

Interested in pursuing a long-term investment strategy? Contact an advisor at Wipfli Financial to learn more or get started.

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The unfortunate gamification of investing

Wipfli Financial Advisors, LLC (“Wipfli Financial”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC); however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. Wipfli Financial is a proud affiliate of Wipfli LLP, a national accounting and consulting firm. Information pertaining to Wipfli Financial’s management, operations, services, fees and conflicts of interest is set forth in Wipfli Financial’s current Form ADV Part 2A brochure and Form CRS, copies of which are available from Wipfli Financial upon request at no cost or at www.adviserinfo.sec.gov. Wipfli Financial does not provide tax, accounting or legal services. The views expressed by the author are the author’s alone and do not necessarily represent the views of Wipfli Financial or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Wipfli Financial, and Wipfli Financial does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Wipfli Financial of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional.
Dean Stange

J.D., CFP® | Principal, Senior Financial Advisor

Dean Stange, J.D., CFP®, is a Principal and Senior Financial Advisor with Wipfli Financial Advisors in Madison, WI. As an attorney, Dean has provided estate and succession planning advice to business owners for more than 20 years. He primarily focuses on the ways in which business ownership, tax and estate issues can impact long-term financial planning.

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The unfortunate “gamification” of investing

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