Investing Myth 5 | The Lottery Myth | You can be a Millionaire Investor Overnight
Hello, Intelligent Investor.
Trust you are riding with us on the seven investing myths? Bet you are.
Previous myths include the Simple Interest Myth, the Ponzi Myth, the Stock market Myth, the Savings Myth and the fifth myth is the Lottery Myth: You can be a Millionaire Investor Overnight.
How many people have seen advertisements promising Millions Overnight on correctly predicting a random set of 6 digits? #MeToo
Is there anyone in the room who has not heard of ‘lotto’, ‘jackpot’ or ‘baba ijebu’? #Sighs, ok, all hands are up. What an audience!
Ohhh, how we have heard, seen and witnessed this several times over. People playing 100 NGN (a few pennies and cents) and then some for that one million event. Worse still, the media continues to feed us with such stories of people that won the investing lottery overnight.
We are in a quick and fast generation…Everything we do and want is quick and/or fast… And we tend to think the journey to being a millionaire investor is overnight. Perish that thought. Not gonna happen. #Kolewerk.if you dont know how money grows, you wont know when money goes. Invest poco-a-poco. Click To Tweet
ENTER BABA IJEBU
In a typical emerging economy (Case in point, Naija area), people tend to look for the quick (and the dead). Why because, the economy is still recovering, jobs are missing, the standard of living is low, basic necessities are costly….and corruption reigns supreme.
The resolve for most young fellas. Look for a high-stakes low entry option.
Enter Baba Ijebu.
Not sure of the number , but the guesstimate of ‘Baba Ijebu’ ensemble in Nigeria alone would outnumber the number of deposit money banks, asset managers and Insurance companies put together. And their adverts are catchy and all and about.
‘Win millions with 100 NGN’ .
‘You fit be the one’.
‘Baba God don pick your call’
How hilariously disheartening. That one can become a millionaire by the prediction of one event, say Football is univocally voodoo-ish.
And when you speak to the ‘bettors’, the captives of this gambling sport, about their reason for gambling, they reply, reassuringly ‘one day, I fit win millions’.
‘One day, you fit win millions ke. Who is playing Mortal Kombat with your medula?’.
And such ‘lottery’ disposition is carried over into our investing operations. Betting all we have on a singular event and expecting the ultimate payoff like the lotto. Well, there is a greater chance of being struck by lightning, a woman giving birth to quadruplets or finding a pearl in an oyster than winning the ‘Baba Ijebu’ lottery. Should we talk about the odds?
THE ODDS OF WINNING BABA IJEBU
Imagine you are playing for a billion naira (3 Million USD). And you want to win the lottery by randomly picking 6 numbers.
What are the assumptions?
- You must choose a sequence of 6 numbers correctly to win.
- The lowest number you can choose is 1
- The highest number you can choose is 99
- A given number can only be chosen once per try (per lottery ticket, etc.)
In order to win, you have to pick the first number right AND the second number right AND the third number right, etc. In the language of statistics, AND usually means to multiply. So, to figure out your odds of winning, multiply together all of the fractional odds of picking a given number correctly. Your chance betters by the number of different ways that a sequence of 6 numbers can be written down, which for 6 numbers is 6!
According to webmath, you have 1 in (wait for it)
In words, that’s one in One Billion, One Hundred and twenty million, Five Hundred and twenty-nine thousand, two hundred and fifty-six CHANCE of winning the lottery.
That’s a lot of numbers
A lot guessing and
A lot of lifetime to play for.
Now that is Lottery Investing lesson 101. It ain’t worth it, duck!
And the deal breaker is that 1/3 of Americans think winning the lottery is the only way to become financially secure in life. I bet that number should be like 3/4 in most African countries.
LOTTERY IS A ONE CHANCE EVENT!
If the statistics above dont send a shock down the spine, one should read it again. But then again, when people play the lottery, they dont do it with their head, but with their emotions.
Folks, do not not carry that impression into investing. It would clear your doubt. And invert your expectation literarily.
Yes, your expectations can be inverted quickly. The Inverse Lottery effect. That is someone comes with a huge amount of money, expecting to hit the Investing Jackpot. But ends up in the Poverty Pothole. Ask Jesse Livermore.
The lottery myth is the reason why people continue to expect a ‘baba ijebu’ windfall in the markets irrespective of how much prior generations have lost. Think about the Tulip Bubble in Netherlands. The 1913, 1927, 1989, 2008 stock-market crashes and yet, people continue to expect lottery millions in the financial market. No one makes a lottery return overnight. No one. None!
Last year, the news came out that famous Investor, Warren Buffet made over 2 billion dollars just few days prior to the presidential elections. A lot of people taught he made the investment a few weeks or months before. No, he did not, he held the stocks that made him that amount several years before. Mr Buffet has shares that he has held for decades in his portfolio. If in doubt, check his annual letters.
Plus he had a lot of buying power. If you are worth 70 billion and you make 2 billion in a week, that’s just circa 3% increase in networth.
In investing, stick to what has compounding effect and flee from anything that has an overnight effect. if you dont know how money grows, you wont know when money goes. Build poco a poco.
THE BITCOIN BUBBLE EFFECT
Let’s take a peek at the most sensational currency this year, Cryptocurrencies. Especially the Bitcoin and Etherum ilk. At the beginning of the year, bitcoin was at 700 per USD. As this is written, it is about 4100. That is a 485% return in 9 months. While many astute investors would consider this a bubble, many gullible entrants are enamoured by the speed at which Bitcoin has climbed and jump on the bandwagon.
It is of more importance to understand that the bitcoin effect is fueling a bubble that would find rest like Noah’s ark after the downpour. In local parlance, they say ‘water go find he level’. In finance, we refer to that effect as the mean-reverting effect.
While the use case for bitcoin is past the proof of concept case, the gravy train left a long, long time ago when Bitcoin was 1 to $1. While we believe they are opportunities to enter. Like Noah, we admonish, allow the water settle down before you let the animals out of the ark. And seriously though. some investors bought into it that early. If an investor bought bitcoin when it was 100 dollars. Then their investments would have returns above 4000%. While the block-chain technology is here to stay, our caution is this. If you don’t understand it, don’t invest in it. In investing, when you notice a sleight of hand, it goes with the money.
While the use case for bitcoin is past the proof of concept, the gravy train left a long, long time ago when Bitcoin was 1 to $1. And seriously though. some investors bought into it that early.Case in point, If an investor bought bitcoin when it was 100 dollars. Then their investments would have returns above 4000% in today’s returns. That is a lifetime of returns! While the block-chain technology is here to stay, our caution is this. If you don’t understand it, don’t invest in it.
In investing, when you notice a sleight of hand, it goes with the money. Investing is not a game of luck, guess and chance, it is a game of calculated odds, the right information and applicable interpretation. When in doubt, always stay the sidelines.
7 min read.