There is a big difference between investing and gambling in the stock market, and retail investors should know the difference.
It is the view of Wayne McCurrie from FNB Wealth and Investments, who warned that buying a risky share on the JSE equates to gambling rather than investing.
Although both investing and gambling aim to make a profit, the risk associated with each activity is vastly different.
With investing, the fund manager or retail investor minimises risk by selecting good, reliable companies with a long track record.
Long-term investors typically have a diversified portfolio of companies and spread their risk across many asset classes.
Gamblers, in comparison, invest most of their money into one or a few stocks without a loss mitigation strategy.
McCurrie said investing on the JSE typically involves buying good companies which have been around for many years. You also hold the shares for a long time.
Putting money in risky companies, like Tongaat, Steinhoff, or Aveng, is not investing. Instead, it should be seen as gambling.
He highlighted that there is nothing wrong with taking a bit of money and gambling it on a risky share, which can produce spectacular returns.
However, people should not risk a large amount of their money on a speculative share.
David Shapiro, deputy chairman of Sasfin Securities, explained the difference between investing and gambling through Sasol’s share price.
When Sasol’s share price plummeted to R27 per share when the Covid-19 pandemic hit, the company was in deep trouble.
“If you bought Sasol in March 2020, it was speculative. You were gambling with your money as the share price could have gone to zero,” Shapiro said.
Since then, the share price has shown spectacular growth on the back of the high oil price. However, this could not have been predicted two years ago.
“When you handle other people’s money, you cannot speculate on risky shares. You have to be more conservative and take the right route,” said Shapiro.
“I can’t gamble on the stock market. I have worked too hard for my money, and I think most of our clients have too.”