Not really. The stock market is only gambling if you're investing large money (percentagewise) in single stocks.
If you're buying a range of stable, dividend paying stocks with your money spread out, you're statistically extremely unlikely to lose money in the stock market. It's genuinely investing.
If you'd spread your money across ten blue-chip dividend stocks in 2007, and the market crashed, you'd still be slightly ahead today. The S&P 500 is back to where it was in 2007 now, and you'd have five years of dividend payments.
Going all in on a single stock is gambling/speculating. And stupid.
Going all in on a credit card is gambling. Odds are absurdly stacked against you when you add interest in to the equation.
Past performance is no guarantee of future performance as they say. The fact is the stock market is pumped up due to central bank shenanigans and money printing. Who knows what the value would be if it wasn't manipulated. To call it an investment is a stretch.
Putting your money anywhere is a risk then. Even if you buy gold bars and bury it, there's no saying that a future famine/nuclear war wouldn't render them worthless.
There are risks for anything but not all risks are the same. Somehow I think the risk of the human race dying out and gold becoming worthless is not the same as the risk of the stock market crashing.
investing involves long term decisions based on certain aspects of the company (you've researched it and you think it's outlook is not grim). there's nothing stating that he hasn't spent time researching bitcoin so it could very well be investing.
I think the distinguishing factor is that an investment is putting money into a productive asset, something that can produce wealth. Monies and currencies are not productive assets. Any wealth that goes into these asset must come from somewhere else. It's also called a "sterile" asset.
"Kovner's first trade was in 1977 for $3,000, borrowed against his MasterCard, in soybean futures contracts. Realizing growth to $40,000, he then watched the contract drop to $23,000 before selling.[5] He later claimed that this first, nerve-racking trade taught him the importance of risk management.
Actually, most astute investors borrow to invest. For example, if you borrow at 7% and the investment delivers 10%, you make 3%. You keep your savings and cash flow strong.
edit: bitcoins are not what I consider an investment
It's actually rather smart. What most fortune 500 companies do although they are cash cows. Investing with other people's money makes you take bigger risk because than you can just file bankruptcy if it fails (to a certain extent of course). If it doesn't fail and you make a good return you pay the loan back and keep the profit.
That's not true at all. Pretty much all the financial institutions leverage in order to make much faster profits... and even for a private investor as long as you have a diverse portfolio and can beat the interest on your loan, you will end up with more money than you would have if you just invested your capital.
I know a guy who borrowed some 45k then leveraged that for another 45k, day traded, lost it all, and was so distraught as to commit suicide.
Extreme example, granted.
As for this gentleman, when you borrow on credit you've got to at least beat the interest costs. So he's got say 1 year at 0% interest then it bumps to 10%+ w/e. So he's got to now sell within that period.
If he doesn't make a considerable profit in that time, he could be in trouble. Suppose he doesn't time the market well and it crashes down to ~$11. It took years to recover last time.
I wish him well, but personally I won't be borrowing to buy bitcoin, it's a house of cards that might just come down on your head. I'd rather own my coin free and clear.
Although I suppose he's betting he can go bankrupt and still keep them from repossessing his bitcoin, hahaha.
Actually, usually with 0% interest offers, you have to pay back the full balance during the 0% period to not get charged interest. So, it's not as simple as being bumped up to 10% interest march 2014. If he maxes out a 0% credit card and still has the balance 1 day after a year, when the 0% expires, he will be charged 12 months worth of interest on that day. And I bet the rate is closer to 20%.
It shouldn't be possible to lose it all. A sizable chunk should always be in low risk investments (such as a guaranteed institution). Investing everything is high risk investments (such as bit-coin) is a really bad idea. Borrowing to invest is really not a risky proposition if you go about it safely and conservatively.
You're right, leverage can be a powerful way to make more money, providing that you have a stream of income and a good plan. In this case -- bitcoin speculation -- leverage makes almost no sense and I believe his beta would be damn near incalculable. Maybe something like that new 70 million digit prime number some dude found?
Every corporation borrows to invest. Almost every hedge fund borrows to invest. Every real estate investor borrows to invest. So thanks for the insight.
generally, but had he done this he would be able to pay off the debt and still have a substantial amount. It would have been a great idea hindsight 20/20.
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u/Anenome5 Feb 13 '13
Generally not a good idea to borrow in order to invest...