It’s understandable why many view the stock market as little more than a casino, considering the way some people approach investing: betting on fly by-night penny stocks; buying into the newest, shiniest stock trends; or basing investment decisions on social media chatter. It turns investing in a business into the equivalent of putting all your chips on red.
Stock investing, though, should be viewed as what it is: becoming part owner of a company, because you do own a piece of the business, however small that share might be. So having a long-term owner’s mindset can help you better select winning investments.
Not every investment will pan out, of course, but a recent survey of investors and sports bettors seems to suggest that if you approach investing like gambling, you’re likely to increase your chances of losing money.
Having a dog in the hunt
A certain mindset is needed to gamble or invest, as both require accepting the risk of losing your money in return for a possible reward. But despite the similar thinking involved, bettors and investors approach their preferred pastime with different purposes.
Independent casino review portal BonusFinder.com recently surveyed 1,014 investors and sports bettors about their participation in each activity and found that although making money was important to both, it was a secondary consideration to sports bettors.
Only 53% said they bet to make money, preferring instead to bet for the entertainment value it offered. And that makes sense: Having skin in the game can make any match more interesting. Horse racing would undoubtedly be nowhere near as exciting if you couldn’t place a bet on which horse would win, place, or show.
That dynamic is also borne out by the financial results of the two largest sportsbooks, FanDuel (owned by Flutter Entertainment) and rival DraftKings.
With people quarantined last year looking for something to do (aside from streaming movies on Netflix), some of them frittered away the hours betting on sports.
Flutter’s U.S. sportsbook revenue rose 101% last year, while DraftKings’ revenue almost doubled too. Together, they own about two-thirds of the online sports betting market, but they’re active in only about a dozen states, so as more states authorize sports betting, look for their business to surge even more.
Sports betting brashness
Investors, on the other hand, were primarily motivated by making money, with 71% in the survey saying they put their money into the stock market for that purpose. Being entertained didn’t even enter the equation, and maybe that was the reason behind the outcome of each group.
Among the highlights BonusFinder found was:
- Sports bettors were more likely than stock investors to assess risk and feel confident in getting big returns.
- Sports bettors were also somewhat more reckless than investors, with 58% saying they bet more than they could afford to lose, versus 53% of investors saying they did so.
- Ultimately, investors were more successful than sports bettors, with 64% mainly reporting winnings when investing, compared to 45% for their counterparts who bet on sporting events.
Legal sports betting is still relatively new — the Supreme Court in 2018 struck down as unconstitutional a federal ban on states authorizing wagering on sporting events. That could be why 90% of the survey’s respondents say they have invested in stocks, but just 55% have wagered on sports.
Still, investors were far more likely to have also bet on sports (89%) than sports bettors were to have also invested in stocks (54%).
Investing is where it’s at
Investing was also the preferred activity, regardless of age, with millennials, Gen Xers, and baby boomers all reporting they have invested in the stock market to a much greater extent than they bet on sports.
While boomers were least likely to have done either activity (83% invest, 38% bet), millennials were the ones diving into both with abandon (91% and 57%, respectively). Interestingly, these relative youngsters were the ones most willing to bet using cryptocurrencies with 29% saying they had placed a wager using crypto.
Still, 46% of all sports bettors were more likely to have bet on a sporting event using crypto than investors were to use crypto for stocks with just 30% saying they had.
Millennials were also more likely than other groups to jump on meme stocks. When the trading frenzy in GameStop and AMC Entertainment broke out earlier this year, 34% of millennials took a flyer on the stocks compared to 30% of GenX investors and just 18% of baby boomers.
That last group has undoubtedly been through more market cycles than their younger counterparts and has seen more manias and stock investing fads come and go. Sitting on the sidelines is likely seen as the more-prudent response.
However, that daring streak that runs through sports bettors is apparent in meme stock investing as 41% of sports bettors jumped onto the meme stock bandwagon compared to 33% of investors. Moreover, 55% of sports bettors were likely to view meme stocks as a way to make a quick buck versus 44% of investors.
Giving yourself a sporting chance
So do sports bettors make better investors? Clearly, the answer is no. They have an outsized belief in their ability to analyze risk and make a killing and are willing to bet more than they should to realize that return.
Yet as BonusFinder CEO Fintan Costello notes: “We were quite surprised to find that the margins were as tight as they were when comparing these two groups. While investors were more conservative with the amount of risk they take, the differences weren’t extreme.”
Perhaps because more investors also bet on sports than sports bettors invested in the stock market, it may be that when investors do cross over, they abandon their usual prudence and become willing to assume more risk. Remember wagering on sporting events is not prioritized as an activity to build up a retirement nest egg but rather as a means of being entertained.
And while losing any money is not good, maybe that’s how it should be. As gamblers might say, as long as you bet with your head and not over it, it’s OK to take more risks when betting. Just remember not to be so reckless when it comes to your portfolio.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
View more information: https://www.fool.com/investing/2021/07/26/do-sports-bettors-make-better-investors/