The Stock Market Offers a Chance for a Winning Investment Strategy

The chance to create a winning investment strategy is what distinguishes investing in the stock market from gambling in Las Vegas.

Stock market winning investment strategy – Stock Following

Las Vegas, Nevada

The participation in the 2017 Consumer Electronics Show (CES), the world's largest annual trade show that took place from January 5-8 in Las Vegas, offered an excellent opportunity to observe casino players and prompted me to think about the difference between investing and gambling.

There is a lot of confusion here. It’s not uncommon to hear that the stock market itself is a kind of casino. The idea in one form or another has been expressed by many. John Maynard Keynes made this comparison by famously saying: “When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.” The assertion that “building a stock market is like building a casino” can be found in Michael Lewis’s book about high-frequency trading, Flash Boys: A Wall Street Revolt. Nicolas Darvas, a well-known self-taught investor and dancer, titled the sequel to his most famous book How I Made $2,000,000 in the Stock Market, Wall Street: The Other Las Vegas.

The idea of the stock market being a casino at first glance does also seem to be supported by data. For example, CNNMoney, in its article of December 31, 2015, stated that “Nearly 70% of investors lost money in 2015”.

However, this notion is not correct, at least from the point of view of a stock market player. My belief is based on research which I carried out at Columbia University over the course of six years, as well as on the StockFollowing® investment approach that was created based on its findings. They have both demonstrated that it is indeed possible for a market player to beat the stock market and stay profitable in the long run. 2015 was a challenging year for investors, and the StockFollowing® investment performance in that year was not as outstanding as in other periods. But to call the double digit investment return obtained by investing in the SPDR S&P 500 ETF (SPY) with no leverage a failure is also inaccurate.

Of course, the possibility that as many as 70% of investors can lose their money certainly gives the comparison of the stock market with a casino some credibility. But the fundamental difference is that the stock market offers investors the chance for success in the long run. The casino does not provide this chance. By sticking to the winning investment strategy, an investor in the stock market can justly count on both preserving the principal and having a reasonable rate of return. By continuing the game in Las Vegas, the gambler with 100% certainty loses everything.

It is namely the possibility of creating a winning investment strategy that differentiates investing from gambling. There is no winning strategy in Las Vegas. In the stock market such a strategy can be found.

 

Stock market winning investment strategy – Stock Following

Stock market winning investment strategy – Stock Following

Stock market winning investment strategy – Stock Following

Stock market winning investment strategy – Stock Following

Stock market winning investment strategy – Stock Following

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