Jason Brown, Director of Advisor Success

After a recent high school basketball game, I had a brief conversation with a good friend about what just happened with GameStop. He’s not in financial services; he’s a smart guy who co-owns a successful construction company. He’s naturally curious. As we were talking about GameStop and investing, he said something that stuck with me.

“It depends what game you’re playing.”

“What do you mean?”

“Well, that kind of stuff is basically like gambling. It’s not investing, though. You’re playing two completely different games.”

It struck me as an incredibly helpful distinction.

I think there’s a kind of healthy form of gambling. You set limits on the amount of money you’re going to gamble, nothing that even approaches the “I think it would probably be best to hide this from my spouse” level. You’re also clear on the primary goal: enjoyment, fun. It’s not to win big or leave a millionaire. It’s like spending money on golf or going out to eat. And you’re wise to know how quickly it can turn into something addictive, never assuming you’re some kind of alien who is immune to the allure of wealth. You’re not. I’m not. We’re all prone to be greedy and need some guardrails to keep us from overreaching.

When it comes to making a bet on an individual company in the market, it’s good to name what it most likely is, gambling. Don’t entertain the thought that it’s something else. Just admit gambling is the game you’re playing and heed the rules that keep it healthy. It’s OK. And if you win, have the humility to admit it may have been luck.

Investing is different.

Consider what you mean when you say, “That person invested in me.” It typically means that they spent a considerable amount of time with you. It means that they sacrificed something of themselves for your benefit. It means that you’re a better person because of the role they played in your life. It means that you wouldn’t be who or where you are without their faithful presence. Investing in other humans is a long-term enterprise. Its results are not immediate. It’s a patient, thoughtful, intentional process guided by a vision of what could be.

Investing in the market is not about getting rich quick. It’s not led by FOMO, the fear of missing out. Ideally, it’s not driven by fear or greed at all. It’s patient, thoughtful, intentional and guided by a long-term vision of success. It celebrates the good times, but more importantly, stays committed during the bad times. It’s rarely anxious. It’s a very different game than gambling.

I’d like to be candid. Don’t gamble with the dollars you need for life now or in the future. Please. It’s not good for you. It’s not good for the people around you. It’s not good for the world at large. Don’t listen to the commercials that tell you it’s easy to make it big in the market. Attempting this is a terrible idea and mostly generates wealth for the company selling you on the idea.

However, feel free to gamble with a few of the dollars you don’t need now or in the future. Here’s a quote I like by Morgan Housel on Page 119 of his book, The Psychology of Money:

“Day trading and picking individual stocks is not rational for most investors – the odds are heavily against your success. But, they’re both reasonable in small amounts if they scratch an itch hard enough to leave the rest of your more diversified investments alone. Investor Josh Brown, who advocates and mostly owns diversified funds, once explained why he also owns a smattering of individual stocks: ‘I’m not buying individual stocks because I think I’m going to generate alpha (outperformance). I just love stocks and have ever since I was 20 years old. And it’s my money, I get to do whatever.’ Quite reasonable.”

And let me pause briefly to give a shameless plug for financial advisors. Creating a financial plan – something we not only get paid to do but love to do – will help you have a good sense of just how many dollars would be wise to put in that gambling bucket if it’s indeed an itch you need to scratch. Oh, and you might consider giving away a portion of your winnings to a nonprofit doing good in the world – just, you know, to keep yourself honest!

So, invest in the people around you. Invest in your favorite nonprofit or the latest humanitarian crisis. And, with those dollars you don’t need now, but that you will need in the future along with some growth and dividends, long-term investing versus short-term speculation is the game to play.

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Jason Brown, Director of Advisor Success    View Bio