Are you Betting or Investing? - The Hyperion Effect

If you type the two words ‘Investors’ and ‘Bet’ into the google machine it will tell you in around 0.14 seconds that there are a shade over 10.2 million results. Here is a sample of some of the headline results.

  • Investors Bet on a change in fortune;
  • EU Plans Euro Pledge as Investors Bet on Debt Effort
  • Investors Bet on Chinese currency Boost
  • Dow rallies 170 points as investors bet on U.S.

I also found these two results, one directly above the other and only one month apart

  • Gold rises as investors bet on $US drop
  • Investors bet against gold

If you run these same words through Microsoft’s Bing search engine, you actually receive over 16 million hits, implying that there is out there on the interwebs a large number of people who believe that investing is betting.

I first thought about this topic a few months ago when the RBA kept rates on hold and in the evening news I saw Alan Kohler introduce the topic by saying that the dollar plunged when rates were left unchanged as ‘traders were betting’ that there would be an increase in rates, or maybe it was the other way around. Regardless of which way it moved, I focused on the words ‘traders betting’. Does this mean that the stock market is some kind of giant casino and the traders are players around the table?. If this is the case then i have some really bad news for you……its your money that is bankrolling them! Like it or not every working Australian has some form of exposure to the stock market through their Superfund and so when traders place a bet, they are using your money to do it.

Lets set aside that particular issue for another day though and discuss whether the stock market is one giant casino, or racetrack or pokie machine, whatever is your chosen vice. Stock markets are the engines of capitalism and the free market. They are a place where someone with a bright idea or new product can come and receive capital to develop, build and sell their idea. In return, investors who provide this capital receive both income in the form of profits paid out, and capital growth in the form of share price appreciation. Over time, companies who’s ideas and products prosper will generate returns, whilst those who do not wither and die, with the ultimate question being which ones will survive. It is from here that I can only assume the concept of betting comes.

The question you need to ask yourself is do I want to bet or do I want to invest?. If you are an investor then it becomes an easy equation, why you ask?, well look at the previous paragraph. Companies who prosper will survive and continue to live on in the stock market, whilst those that do not will die and be delisted, therefore over time the stock market simply represents a host of companies that in aggregate generate profits and returns for investors. To capture that return, all you need to do is simply make an investment, for the long term, in the market itself and  sit back and enjoy the spoils of capitalism.

If instead you would like to roll the dice and take a bet you have two options, either take a punt on a company or take Number 7 in the 5th on Staurday, as any way you look at it, both of these are bets.

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