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Lesson 1. Confronting Your Fear of Stocks > Is Investing Like Gambling? - Pg. 7

Confronting Your Fear of Stocks 7 In 1929 the stock market had reached a new high of 469.49 the month before the crash. In 1987 the stock market had also reached a new high of 2,722.42, two months before the crash. It is safe to assume, then, that a significant portion of the money being lost by investors was the profits that they had made from their investments. This doesn't mean that their losses weren't real, however. If at the end of the day you still have the money you put into the investment, it is difficult to say you lost anything other than the time that your money was occupied and, of course, any opportunities which were missed as a result of it. Many fears may be somewhat justified. To not invest because you fear a stock market crash is not one of them. Is Investing Like Gambling? Investing in the stock market is not gambling. True, both do attempt to accurately predict future outcomes, but the similarities end there. The inherent fear in gambling is that the outcome is de- termined by something over which you have no control and understand even less--a pair of dice for example. This is not the case in the stock market. In the stock market, investment decisions are made after a careful analysis of the available information. For example, let us say you receive a windfall of $100. Option 1: --You don't have any real need for that money right now, and you sure wouldn't mind trying to make that money work itself up to a bigger sum. You could place a bet on the roulette wheel, in which case the fate of that $100 would depend entirely on your ability to predict random probability. Regardless of how much research you put into that prediction, the end result once the ball began to roll would be determined by nothing more than sheer chance. That's pretty risky. Option 2: --Investing in stocks works a little differently. Once purchased, a stock represents a part-