WALK INTO ANY

casino and you'll see an army of people pumping dollars into slot machines full well knowing they're going to lose. We feed slot machines because they're fun; even I have lost a few dollars to the slots at Las Vegas' McCarran Airport, which is notorious for having the worst odds in town. (I blame the scotch).

Of course, we don't gamble for the money. The roll of a roulette wheel is exciting, and for a few brief moments, we revel in the adrenaline rush of a fantasy payoff. Gambling isn't investing...it's entertainment.

The primary difference between the gambler and investor is that the gambler does not provide an economic function beyond his own enjoyment. Keno is a cheap thrill, but when you buy a stock, even for a few hours' time, you are providing a vital economic function by supplying liquidity to the marketplace. If you bought, someone else sold. Capital is allocated, reallocated, and the market and thus society is more productive and efficient.

There's also a legitimate transfer of ownership. Buy one share of McDonald's, and you indeed become Grimace's boss. You can vote your proxy, attend the annual meeting and pester the investor relations department to your heart's content. Of course, with 1.2 billion shares outstanding, don't expect one share entitles you to march down to Ronald's office and demand a meeting with Mayor McCheese.

Regardless, an economic function is served. As we've often pointed out, the world depends on the profit-seeking speculator looking for nothing else than to make a buck. Free and vibrant markets are the best indication of a just and healthy society.

Even "bad" bets have economic merit, such as the subprime mortgages that have collapsed in value and are now under increasing scrutiny by suspicious government regulators. No matter how foolish or lax the lending terms look in hindsight, they provided huge economic value.

Subprime loans allowed literally millions of people who otherwise would have never gotten a loan to buy homes. Yes, the investors (gamblers?) took a risk by buying the risky paper. But money was loaned, and homes did get built and occupied. The same could be said about Pets.com, Kozmo or any other bubble-era flop. Billions were lost, but they were invested in something, not just transferred from one party to another based on the throw of the dice.

So the investor takes a risk...but the gambler invents it. "Playing" the slots is not akin to "playing" the stock market. There is no skill involved in picking a random number. There is no technique in pulling the handle on a one-armed bandit. Even in table games like blackjack, "perfect" play still puts the odds of success on the house's side.

I have nothing against gambling (and would argue it should be totally legal and unregulated), but only an irrational person would believe it's a smart way to make money. Objectively, we understand there is no economic benefit beyond the entertainment value you receive from making a bet.

People mistakenly confuse gambling with investing because both involve risk. But risk is everywhere: Even putting your assets under the mattress carries risk the very real likelihood your money will lose its purchasing power over time through inflation.

The only way to mitigate the risk of investing is to play a disciplined, consistent hand. Technique is what turns "betting on a stock" to "making an investment." As we've often said, trading comes down to a series of choices made over time. The smarter you can be about those choices, the better the odds that you'll make money.

Yet it's so easy to shoot oneself in the foot. For example, one of the most important yet oft-overlooked elements of investment is position size. Instead of developing a consistent trading unit, people inevitably either bet too big or way too small. It's a topic many of your favorite Smartmoney.com columnists, including yours truly, will be covering in depth next month at The Money Show Las Vegas. We hope you see you there.

Because while Lady Luck might occasionally blow on your dice, you can't build a successful investment portfolio by being "lucky." Investing is not gambling, but if you treat it as such, you'll find the endgame empty pockets is quickly the same in both endeavors. Dictums like "let it ride" or "all in" tend to make for as short a night in the market as it does in the casino.

And how to win at games like blackjack or craps? Beyond the sage advice in Mr. Kenny Rogers' 1978 hit, I avoid the casinos altogether. As a rule, I don't take part in games where the odds aren't tilted the least bit in my favor. When it comes to the tables, my only advice would be not to play.

Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC.