Reddit’s Wallstreetbets: Are User’s Investing or Are They Gambling?
To answer this question, it’s essential to know the significant difference between the two. Although both of them involve a little bit of a risk to see a reward, they can not be considered the same.
What Is Investing?
Investing is committing funds to a particular asset in the hope of receiving a financial gain. It’s as simple as it gets. Investing in property so you can benefit from the rent or buying up a stock so that you can sell when the prices rise are both fair examples. The sole purpose of investing is to expect a return. For instance, the return can be in the form of appreciation of the asset or income generated over the course of the investment. Taking the example of shares, you invest without knowing whether the company will make a profit or stay on a continued path of financial success.
What Is Gambling?
Gambling on the other hand is risking or staking your money on an uncertain outcome. You are entirely unsure what you will get in return but go for the sake of the possibility of some kind of financial gain. The most common form of gambling is playing cards, where gamblers stake their money even before they start playing, not knowing whether the cards will be played in their favor. Betting is also done on sports, horse races and lotteries which all have very hard to predict outcomes.
Investing Vs. Gambling
Both of them involve a high level of uncertainty and both hold risk.
The odds are in favor of an investor as opposed to a gambler. Wallstreetbets is Reddit’s investing subreddit. It’s like a school for the stock market, a place where you can learn how to invest better. For others risking massive amount on plays that they have not researched it's really more of a casino.
How to Define Between the Two?
Certain factors will help you define whether the risk you are taking is an investment or merely a gamble.
- The amount invested: Investors typically allocate a percentage of their total investment fund towards different stocks and options. This is referred to as "diversification". Diversifying allows you the ability to take small hits without losing all of your portfolio from a bad earnings report or bankrupted company. In r/wallstreetbets you may find users are investing 100% of their savings into a single stock or option that can result in a 100% loss. The lack of risk protection in this scenario puts you at risk to lose all your investment funds rapidly. This would be an example of gambling.
- The information: Many investors take time to research the stocks they are investing into. They learn to understand that chart technical movements, company news and financial stability will all have an effect on the return they see. On the other hand an individual who is gambling may invest in a stock or option solely based on a feeling that they have had or even on something they have seen and taken as sign.
Here traders come to gather and share ideas, success stories and even loses (Known on wallstreetbets as "Loss Porn"). Newer individuals tend to jump straight into trading with out much of a knowledge base leading to quick losses. While those with a bit more time understand that it takes time to understand trading and how to manage risk. The answer overall is not as simple as yes or no when considering if user's are gambling or not.
It is our belief that Reddit’s wallstreetbets has both gamblers as well as legitimate investors lurking and engaging on the subreddit. Ultimately, this question can be answered by analyzing the actions being taking and comparing them to legitimate investing practices.