That Riverboat Casino on Wall Street
Based on my last post, I receive email expressing shock at my equating "investing in company stock" to gambling. Doesn’t investing mean you own part of a company? That’s just the opposite of wagering at the Blackjack table, isn’t it? The answers to these questions are “No” and “No”. The people posing the questions aren't stupid. It’s simply another case of it "sounds true, so it must be true." And there are plenty of business journalists helping to perpetuate the myth.
“For realsies”, unless you are part of an initial public stock offering, what you are buying when purchasing stock, is one vote per share on issues that the company allows you to have a say on, and entry into a game of chance. It’s a kind of virtual casino, where players called “investors” wage money on the popularity and public favor of one company over another. “Winning” might have to do with the profitable performance of the company, or it might not. Fears of other investors, a volcano on another continent, or a newly elected official in Uruguay can all affect the value of your stock either positively or negatively. And just like in a real casino, it’s hard to predict how you’ll make out. That’s why we keep hearing about “market irrationality”.
In exchange for an initial stake (“investment”), players (“shareholders”) receive the right to partake in the profits and losses of a piece of paper with the company’s name on it. Please pay close attention here: It’s really the life of the piece of paper that you directly join with – not the life of the company that the stock is named for.
For example, if XYZ Company goes bankrupt, as a stockholder, you’ll get Zero Dollars of your investment back. Yet, if XYZ goes through a rough patch and the demand for its stock falls, you, the investor, fall with it.Continued on the next page