Vltava Fund Q1 2025 Letter To Shareholders

2025-04-04 06:00:00 ET

Summary

• Some years ago, an acquaintance of mine wrote an article in which he asserted that the stock market is a casino.
• Since that time, I have often reflected on this topic.
• Is the stock market a casino?

Is the stock market a casino?

Some years ago, an acquaintance of mine who is himself a successful investor in private markets wrote an article in which he asserted that the stock market is a casino. The impetus for his article was a big drop (completely irrelevant from today’s perspective) in the share price of META a day earlier. In his view, this clearly proved that the stock market is nothing but a casino. Naturally, this did not sit so well with me, and, in response, I wrote a short piece 6 years ago arguing, among other things, the following:

1. A place where games are organized and where the probability of winning is on the house’s side can be considered a casino. For example, in the case of roulette, the queen of gambling games, the probability of winning on the casino’s side is 37:36 (European roulette) or 38:36 (American roulette with two zeros). Hence, players as a whole are at a disadvantage in the long run. Apart from roulette, this is true also for other games, such as sports betting, slot machines, horse racing, and state lotteries. Contrast that with players in the stock market (or better said, investors), who, in the long run and as the historical record shows, are generally in the black.
2. Roulette and other casino games are so-called “zero-sum games,” assuming we include the organizer of the game into the overall outcome. In these games, one player’s loss (or of the players as a whole) equals the winning of another player (or of the casino). For the players themselves, roulette and other casino games are “negative-sum games.” The stock market is not a zero-sum game. Its value, and therefore investors’ wealth, is increased over the long term by rising corporate profits and the returns from reinvesting these. Not only is the stock market not a zero-sum game, but it even is a place where all of its participants (investors) can theoretically be in the black in the long term (a win–win game).

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