In a recent, wide-ranging interview with Becky Quick on CNBC, billionaire investor Warren Buffett made the observation that “Gambling is mathematically dumb. In the stock market, you do well if you just sit tight.”
The 95-year-old chairman of Berkshire Hathaway has a long-term track record that is the envy of investors around the world, which makes his perspective worth paying attention to. I certainly do.
Buffett went on to say, “if you go into a casino, you’re playing a game where the odds are against you — it’s built that way. If you go into the stock market, you are doing the opposite; you are buying into businesses that, over time, are designed to become more valuable.”
“But people turn it into gambling,” he added. “They try to guess what the markets are going to do next week or next month. That’s not investing — that’s speculation. And mathematically, it is a dumb game to play. You do not need to do that. If you own good businesses and sit on them, you’ll be fine.”
Now I often hear folks talk about “winning money in Vegas” — and some certainly do — but the odds are clearly in the house’s favor.
Estimates are that the typical “house edge” ranges from about 1%-2% for blackjack to about 5% for American roulette.
If you don’t believe that, just consider all those luxurious casino buildings. And why would you imagine that casinos “comp” big players with luxury suites and limos? Bottom line: If you play long enough, the casino usually wins.
Invest in quality businesses by buying stocks, hold on to them for a long time, and odds are greatly in your favor to be a winner.
Compare those gambling odds with the stock market. Consider odds of a positive return since 1926 for the benchmark S&P 500: up 53% for one month; up 74% for one year; up 87% for five years; up 94% for 10 years; and more than 100% for 20 years.
The odds increase from about a coin-flip over a few days to nearly a sure thing over decades.
So, while there are still no guarantees, investing in quality businesses by buying stocks and holding on to them for a long time greatly increases your odds of being a winner.
“Gambling is mathematically dumb. In the stock market, you do well if you just sit tight.”
Warren buffett
As if traditional betting isn’t bad enough, gambling has now come into your home. While online gambling is illegal in California, those intent on doing so can probably find offshore options.
And new “prediction markets” like Kalshi and Polymarket are legal in California, operating under federal regulation.
These platforms are considered “event contracts” or “derivatives” rather than traditional sportsbooks and allow people to bet on darn near anything.
While writing this column, popular bets on Kalshi included the Chennai Super Kings versus Punjab Kings cricket match and whether broadcasters during the South Carolina versus UConn women’s basketball game will say “airball.”
Common prediction categories include:
- Sports: outcomes like who wins a game, spreads, totals and season futures
- Politics: elections, congressional control and other political events
- Weather: temperatures, storms, rain, etc.
- Economics: events like inflation, interest rates, jobs data and Federal Reserve actions
- Entertainment: things like show premiers, awards, celebrity or media events, etc.
Kalshi, Polymarket and other prediction platforms are all fighting hard to claim they are not gambling sites.
And so far, they’re winning, with an estimated market value of $20 billion each. But in my mind, if it quacks like a duck, it swims like a duck, and it looks like a duck — it’s a duck.
And kids are getting into the action. CNBC personal finance reporter Sharon Epperson noted that in a national survey of high school teachers, 83% reported observing or hearing of students participating in sports or online betting.
Epperson attended a New York charter school finance class and asked students to name six online betting sites, which they did quickly. She then asked the kids to name six stocks, which they could not.
One student said his future investment plan would be 80% in stocks and 20% in betting. How scary is that?
And finally, there are government-sponsored lotteries. The odds of winning are extremely low — close to ZERO.
The odds of winning Powerball or Mega Millions are about 1 in 300 million. By comparison, odds of getting struck by lightning over a lifetime are about 1 in 15,000.
Buffett has criticized government for harming Americans by sponsoring lotteries, thereby profiting off an activity he says is “mathematically stupid.”
Lotteries are in essence a tax that primarily hits the poor and, ironically, helps keep taxes down for the rich.
The bottom line is that hope is not a plan, and gambling in any form is statistically a losing strategy. Gambling of any sort should be viewed as entertainment and done in limited amounts.
While the stock market can be volatile — and there are no guarantees — buying a variety of quality companies and holding them for a long time is likely to produce good results.
Go with the odds.
