Congress is in the process of deciding whether U. S. states can legalize sports wagering.
The battle comes from a lawsuit generated in New Jersey, where sports wagering is legal.
For clarity, the question is whether states have the right to set laws on topics for which there is no federal law covering that particular topic. It is a state’s rights issue, and those are a hot topic these days.
But sports wagering is not an effective way to make money or increase assets. The wagering services which set the lines for sports events – determining which team is the favorite and offering points in the game to the team expected to lose – know what they are doing. They examine hundreds of factors about each team then set those betting lines in order to produce “action’’ (wagers) on both sides of the equation. They win when 50 percent of bettors bet on the favorite and 50 percent bet on the anticipated loser, no matter which teams wins the game.
The system is designed to make money for the betting operations, not for the bettors. Few bettors manage to stay on the positive side of the ledger.
It’s not a rational way to make money.
The stock market is a more legitimate and legal form of gambling. Investors are gambling that a firm’s corporate success will continue and that company will continue to make a profit, which will in turn make the company’s stock price go up. Currently, investing in the stock market is lucrative, as the Trump administration has created an environment and changed tax and regulatory laws to create a more positive atmosphere for corporate success.
But current events show just how outside forces can affect the stock market in a negative way. Every time President Trump says the word “tariff’’, the market responds, often in a negative way. In the past week, the market has taken a downturn every time President Trump talks about the company Amazon, which he claims is not paying its fair share of taxes or postal fees for delivery services. The stock market dipped on March 30 and again on April 2 amid Trump’s tweet attacks on one of the most powerful companies in the United States.
These events could not be predicted. They were based on the immediate reactions of the leader of the free world, and were not prepared in advance so that someone might actually be able to warn investors.
Is that the most rational way to add assets to your portfolio? Is it any more rational than gambling on the New York Yankees-Boston Red Sox game?
Argue that point amongst yourselves, but know that investors themselves aren’t convinced the stock market is the wisest way to increase assets.
In Spectrem’s new study Politics, Taxes and Investors’ Changing Attitudes, investors with a net worth of at least $100,000 (not including primary residence) were asked a fairly simple question: How rational are the current stock market results?” the investors were told to place their answer on a 0-to-100 scale, in which 100 represented “rational” and 0 represented “irrational”.
These questions were asked of investors in early 2018 when the stock market remained high and the bull market remained in place.
Among all investors, the response was 43.16.
That means among all investors, more of them considered the current stock market levels to be irrational rather than rational. No matter what condition or factor was responsible for inflating the stock market prices, investors were more likely to see the Dow Jones and NASDAQ as artificially high with no basis in economic reality.
Certainly, the results of this question were answered differently by investors who consider themselves Republicans vs. those who consider themselves to be Democrats. However, the difference was not stark and did little to indicate anyone considers the stock market to be overly rational. Republicans rated it at 52.36 and Democrats at 35.04.
Even among investors who believe in the legislative and economic moves of the Trump administration, that is not a high level of confidence in the rational nature of the U.S. stock market.
There isn’t even any generational bias in the study. Investors from the World War II era measured the rationale of the stock market today at 45.42, only slightly above the 41.53 registered by Millennials.
Advisors may say that, rational or not, the stock market is currently making many investors wealthy, or wealthier. But rational advisors are portably aware that stock market gains can be lost in the blink of an eye.
That does not make the wager on the Yankees-Red Sox any more reasonable, but it does cause pause. Perhaps investors need to be shown this Spectrem data in order to bring their own enthusiasm into line with reality.
Reality? What a concept.
© 2018 Spectrem Group