April 12th, 2004, 9:27 pm
The distinction is subjective with several shades of grey, and in my opinion, is more a statis of connotation rather than any difference in the underlying activity.Take an NCAA coach, whose job, income, career prospects and other dimension of financial well being are tied to the performance of his team. If he goes in an alley and bets against his team, so that his financial well-being is hedged against the team's win or loss, would you say he "traded" an asset negatively correlated with his portfolio, or that he was gambling, and a wrong bettor at that?Is someone who chooses to buy a Ginnie Mae over a T-bond, enticed by the higher return, not essentially "betting" that interest rates won't fall further or that ideosyncratic prepayments will leave them high and dry?The whole idea of trading is that it increases happiness in some way for both parties. When I go to the bar and get a martini, the bartender is happy to have my sawbuck, and I am happy with my Bombay Sapphire and blue-cheese stuffed olives. Similarly, when I go to a craps table and bet the don't pass/don't come, I am trading an expected loss for casino entertainment, free drinks, and the right to gloat when a "7" is rolled.A gamble is simply a game with a random outcome. Buying a stock whose return you do not know is a bet that the stock's return will reward you for the risk, and also hedges the "financial risk" of the market growing faster than your wealth (basically locking in your proportion of the world's wealth in some statistical way). Right now I can't think of a gamble that is not also a trade, but there are many trades that are not so much thought of as gambles, like paying off your tax liability (OK, maybe so).