With people betting on more and more obscure things like the price of a hot dog deal at Costco or what specific word a public figure will next utter (along with more traditional events like the outcomes of sporting contests) on apps like Kalshi, Polymarket, and FanDuel, it is a good time to revisit the age-old question: is stock investing a form of gambling?
To be sure, you will often hear people refer to the stock market being rigged as a basis for not investing in equities. They are suggesting that stocks are somehow manipulated or controlled in a way that is going to cause you to lose money. If this were the case, then those who are ‘rigging’ the market are doing an exceedingly poor job. Often those same people are happy to head to Vegas where indeed the system is actually rigged to favor the house and puts the customer at a disadvantage. Newsflash: to the extent the stock market is rigged; it is rigged in your favor.
Let’s dig deeper. When it comes to blackjack, the casino has an approximately 2% edge which sounds very small but is enough for them to make huge profits (which you could also enjoy were you to make good investments in the right casino stocks – as in, be the house, not get your house taken from bad bets).
For stock investing, if you want to think of the game as being rigged then you need to acknowledge, based on statistics, that it is massively tilted in your favor. Stocks go up on average about 4 out of 5 years, so that means 80% of the time across a year you will make money (this all assumes you have a well-diversified portfolio and don’t make basic mistakes like selling low after buying high, using leverage, etc.). Not even the most rigged games in Vegas have those kinds of odds. Over 10-year periods (a relatively short holding period for anyone with a retirement account) the win ratio for the US stock market jumps to nearly 100% when factoring in dividends, while returns across these 10-year periods average around 9% annualized. Therefore, if the stock market game is rigged by some unseen hand on Wall Street intent on hurting the little guy investor, then they need to find another line of work because the net result of their so-called manipulation and dishonesty has led to one of the greatest wealth creation machines in history.
Of course, in any industry or large group of people you will always find a bad apple or two. But that does not mean the entire system is broken. For those who believe in such conspiracy theories to the point of choosing to keep money in cash (or potentially worse yet speculating their hard-earned retirement money on risky ventures rather than letting the power of stock market compounding work for them) they are potentially costing themselves a retirement they deserve and can attain through prudent financial planning and investing (it is true that most retail investors materially underperform the broad stock market, some studies indicating the average mutual fund investor earns less than half the market returns. However, it is important to note that is largely due their own behaviors: they try to time the market and end up buying high and selling low).
Remember, when it comes to sensitive topics like vaccines, elections, or the stock market, simple, emotionally compelling falsehoods are easy to espouse as the culprit for someone’s given woes. It is easy to play the victim card and say it is the other guy’s fault for your state in life, especially if the other guy is some unnamed shadowy group allegedly hiding behind a curtain and pulling strings you can’t see.
But the fact is that when it comes to stock investing, all the evidence of the positive power of the markets is right in front of you. The returns prudent and patient investors can attain are right there for anyone to see. And rather than focusing on some aberrational (and often not fact-based) hype about what is behind a given day’s market decline, focus instead on fundamentals of the companies you own, and the fact that over years, the broad stock market has climbed higher and higher regardless of short-term volatility – or what some conspiracy theorist wannabe spouts about the market being rigged against the ‘little guy’.
And since it is almost Thanksgiving, we can all give thanks that, despite its inevitable flaws, the U.S. economy has been the greatest wealth creation machine this world has even known.