Nvidia Crash: Is Stock Market Gambling?

Famous finfluencer Akshat Srivastava has trained his guns at the wild speculation underway in the stock markets.

Taking a cue out of US chipmaker Nvidia's recent stock price crash, he has argued that no stock is safe these days.

As per him, if a multi trillion-dollar firm like NVIDIA can fall by almost 20% in 2 days, we needs to understand that we are living in a highly speculative world.

Hmm....are we living in a more speculative world or a more volatile world?

I believe that investors and speculators always existed and at times, it was the investors who had the upper hand and on other occasions, the speculators.

To be fair to Akshat though, the average holding period for stocks has certainly gone down, at least in the US.

As per a study, while the average holding period stood at 7 years in the 1950s and came down to 2 years in the 1980s, it currently stands at an abysmal 5.5 months.

Yes, that's correct. An average investor is in and out of stock in less than half the time it takes for the earth to complete a full round of the sun.

Thus, Akshat seems to be justified in arguing that investors who hold on to stocks for such a short time may not be termed as investors in the real sense of the term.

They have moved to the category of speculators and are barely interested in the fundamentals of the underlying stock but only in making quick returns.

Well, Akshat does not stop here.

He has gone on to argue that everyone around us is gambling.

The only difference is that those who are gambling with knowledge are beating inflation and earning positive real returns, while the ones who are gambling without knowledge are putting themselves at serious risks of losing all their money.

Hmm...Akshat seems to be implying that investing in stocks still counts as gambling even if you are applying knowledge.

Well, if this is indeed what he meant then it is a dangerous statement to make in my view.

The very term gambling triggers an imagery of either winning big or losing big. It implies that the underlying activity is all about luck and there's hardly any skill involved.

Is that really the case though? Is stock picking nothing but gambling at the end of the day?

To be honest, I don't like the term gambling and the attempts to differentiate smart vs dumb stock picking as knowledgeable gambling vs non-knowledgeable gambling.

I prefer investment vs speculation. If done rightly, a stock can not only prove to be a safe investment, but it can also provide you with adequate returns.

However, if approached incorrectly, it can quickly degenerate into gambling and can cause a lot of wealth destruction.

Say you have a corpus of Rs 1 bn or Rs 100 crores and you are invited by two friends to buy their businesses in their entirety.

The first friend's business is currently loss making and has a debt that is well in excess of equity.

However, he has promised a quick turnaround in the near future and is offering the business to you at a throwaway price.

The second friend's business on the other hand, is consistently profit making, has almost zero debt and is available at a PE of around 12-15. Besides, it also promises a steady, stable growth in profits if not a robust one.

Well, it does not take a rocket scientist to figure out that a sensible investor would indeed prefer the second business over the first one.

The second business is profit making, is of good quality and is also available at an attractive valuation.

The first business, on the other hand, has lots of challenges and there's a big question mark whether it will even turn around given it has not done so yet.

Thus, there is a real risk of this business making no money at all, even if it's available at a throwaway price.

However, this is not how investors behave in the stock market.

A lot of investors are attracted to the first kind of business as some fancy stories are spun around them to lure the investors in. They are even made available at exorbitant valuations, leading to a double whammy.

Hence, you are indulging in speculation if you constantly buy these kinds of businesses.

True investors on the other hand prefer the second kind of businesses. These businesses are profit-making, have low leverage, boast strong fundamentals and above all, are available at attractive valuations.

If you are attracted to the first kind of business often, then it is a dangerous territory in my view.

It is speculation because you are speculating that the business will have a strong turnaround.

However, turnarounds seldom turn, and your money is better off being invested in a sound business bought at decent valuations than in a bad quality business, even if it is available at throwaway prices.

Thus, rather than thinking of investing as gambling, you'd be much better off segregating stock picking into investment and speculation and staying away from stocks that are speculative in nature.

These are stocks that have consistently made losses in the past, have debt that is well in excess of equity, and could also be very expensive.

So, don't worry. Stock picking is not gambling at all.

It can be turned into a low risk and safe exercise if you follow time tested principles of investment and avoid speculation as much as possible.

Happy Investing.

Warm regards,


Rahul Shah
Editor and Research Analyst, Profit Hunter
Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst)