Stock Market Isn't a Casino!

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One of the more cynical reasons investors give for avoiding the stock market is to liken it to a casino. "It's just a big gambling game," some say. "The whole thing is rigged." There may be just enough truth in those shibatoto to convince a few people who haven't taken the time to study it further.

As a result, they invest in bonds (which can be much riskier than they presume, with far little chance for outsize rewards) or they stay in cash. The results for their bottom lines are often disastrous. Here's why they're wrong:

1) Yes, there's an element of gambling, but-
Imagine a casino where the long-term odds are rigged in your favor instead of against you. Imagine, too, that all the games are like black jack rather than slot machines, in that you can use what you know (you're an experienced player) and the current circumstances (you've been watching the cards) to improve your odds. Now you have a more reasonable approximation of the stock market.

Many people will find that hard to believe. The stock market has gone virtually nowhere for 10 years, they complain. My Uncle Joe lost a fortune in the market, they point out. While the market occasionally dives and may even perform poorly for extended periods of time, the history of the markets tells a different story.

Over the long haul (and yes, it's occasionally a very long haul), stocks are the only asset class that has consistently beaten inflation. The reason is obvious: over time, good companies grow and make money; they can pass those profits on to their shareholders in the form of dividends and provide additional gains from higher stock prices.

2) The individual investor is sometimes the victim of unfair practices, but he or she also has some surprising advantages.
No matter how many rules and regulations are passed, it will never be possible to entirely eliminate insider trading, dubious accounting, and other illegal practices that victimize the uninformed. Often, however, paying careful attention to financial statements will disclose hidden problems. Moreover, good companies don't have to engage in fraud-they're too busy making real profits.

Individual investors have a huge advantage over mutual fund managers and institutional investors, in that they can invest in small and even MicroCap companies the big kahunas couldn't touch without violating SEC or corporate rules.