Trading? That’s just gambling for the middle-classes!

Is that a fair accusation? Lets think about what we mean by ‘gambling’; in its purest form it is just a random guess at a random outcome (Roulette, a lottery, scratchcards etc).   The chances of winning the (UK) National Lottery are 1 in 14 million, even the young and healthy are more likely to have died by the time the draw is made than to win the jackpot. This kind of gambling is, as a wise man once said, little more than a tax on the stupid.

But that is just one form of gambling, when everyone’s chances are equal(ly bad) and there is no skill involved at all. The next step up (or down) the ladder involves the introduction of an element of skill. That skill may be fairly slight (or perhaps I am being unfair on those who bet on the number of corners in a football match?!) or more significant like in poker.

Poker shares much of its strategy, some of its vocabulary and a big chunk of psychology with financial trading. I could spend a post, or series of posts, discussing the similarities and differences between these two activities but that would be a digression. What is worth noting is that this type of gambling is now about both chance and skill. As chance should average out in the long term then it almost becomes possible to say that a poker career is all about skill, this is why the final tables of big tournaments often feature the same (poker) faces.

Jennifer Tilly at the 2006 World Series of Poker. More visually appealing than Doyle Brunson!

So I’ve written a bit about how I see some gambling as 100% luck , and which offers little more than excitement ,and other gambling which over the long term comes down to skill and shares a lot with financial trading. But to set financial trading in context there is a further kind of gambling that is overlooked.

We gamble when we resign from one job to take up a new one. We gamble when we decide to invest the money required to go to university.   These ‘life-decisions’ are gambles and they all have much greater financial implications than shorting one FTSE future contract.  They are rarely thought of as gambling though. A salesman’s job seems very like gambling with clear costs (time, petrol, a PowerPoint licence!) being risked with the hope, but no guarantee, of winning sales.

So is trading gambling? Yes, I think it is. But it is the type of gambling where skill predominates and that seems very different from the ‘wing and a prayer’ alternatives. But if trading is gambling then so is applying for a new job. We all gamble in life, we just need to be comfortable with the risks we take and confident that we have the skills to ensure the outcome we require.