Everybody has a strategy. Some people call themselves investors and look down their noses at at people they call “speculators”. Speculators look down their noses at commodities traders like those ex-football jokers on CNBC with the pony tails. Those guys look down their noses at the Vegas card counters they call gamblers. My favorite lottery game is going out of business. It’s a game that has 3M:1 odds so for 3 bux you have a million to one shot. I usually spend 2 bux because the real odds are nearly zero and as the game progresses without a winner the excess the prize money of the lower payout more likely wins grows. This week I’m playing 4 chances for free on winnings from previously won payouts so my odds are 750K to 1, still effectively zero. The next higher up odds are lotto at 22M:1 but I haven’t bought into that so my risk tolerance is somewhere between 1M:1 and 22M:1.
My wife looked into scratch-off games and found web sites devoted to scratch-off strategies devoted to changing the odds. These strategies are quite similar to card counting and betting strategies used in Vegas. I didn’t know anything about them till she mentioned them to me. She was considering to get my kids some scratch-offs for stocking stuffers at Christmas and decided to teach herself about scratch-offs. In the end she didn’t buy any because if one kid won $100 and the other kid didn’t win the non winner would feel gypped and who needs that headache. My wife is smart. I would have just bought the tix and stuffed ’em in the sox next to the Christmas tree snickers. The correct trick would be to buy each kid a an entire roll of scratch-offs since each roll is pretty much guaranteed to have winners, and the fun is in being a winner but then the kids might have to go to gamblers anon if they had too much fun.
Doesn’t this narrative sound like a FIRE narrative? The investor considers himself quite wise investing only in blue chip stocks like wait for it: GE and SHLD better known as General Electric and Sears. Remember Blockbuster? Replaced by something that looks like a red industrial refrigerator and Netflix. Bet you’re glad you don’t own any Blockbuster! What about AAPL? People have made a fetish about owning iPhones and AAPL reaped the profits hitting $227 last Aug but $150 today in a roaring raging bull economy where a $1000 for a phone shouldn’t phase anybody, should it? Don’t look at me I’m running a five year old $200 Google 5x. When they quit updating the software I’ll move on up the line to something new/er that continues updating.
The point being what exactly do you own as you look down your nose? Do you own hype? AAPL is hype, GE making a come back is hype, winning the lotto is hype. They are stories we tell ourselves in which to encase our denial and shield ourselves from our stupidity. 4% x25 hmmmm low cost index funds is the BEST PORTFOLIO hmmmm You can’t beat the market hmmmm Can you clap with one hand? It’s all speculation. How much of your future have you based on hype? What’s the likelihood your portfolio will become a blockbuster, a Blockbuster or a GE? Bitcoin? Only a dope would invest in BTC but then I’m up 1300% in BTC with a free trade. I have no equity remaining in my BTC only profit. I took out the equity when I was up 5000% and put that into BRK.B which has gone up 30% since I bought it in 2016.
The first thing they tell you is thew “low cost mutual fund rap”, that’s the hook. The next they tell you is to pick your risk tolerance like you have a friggin clue what your “risk tolerance” is. (I’ve established my risk tolerance it’s between 1M:1 and 22M:1). You don’t want to look like a chump so you pick 80/20 OUT OF THIN AIR. They ask you how much do you need in retirement? You wan’t to look upper middle class so you pick $100K OUT OF THIN AIR and they go: OK daddyo here’s the deal save up 2.5M take out 4% and you can live forever on that dough! Have a nice day! They point you to a calculator that looks at periods of history of adjustable lengths and it query’s the history about failure. The first period starts in 1871, 6 years after the Civil war ended and only 2 years after they drove the golden spike. Only 10 years after the demise of the Pony freakin Express! You mean I’m supposed to base my projected income need for my 2036 projected death on 1871 economic conditions??? That’s supposed to make me feel warm and fuzzy and confident? I just looked in the mirror and do not have MORON tatted on my forehead. What’s tatted on your forehead? A screed by MMM or 10 bullet points by WCI? Famous WCI quote “it’s 20% content and 80% marketing”, iPhone “it’s 20% phone and 80% marketing”. Like the title says it’s all speculation don’t kid yourself. If you look in investopedia they define speculation and investing in terms of longevity and risk. A good assessment. If you base your 50 year retirement need on a highly speculative stock portfolio are you pretending you short term bet is a long term winner? The variables are amount, longevity, reward, risk, sequence of return, budget, taxes. All of these are quantifiable and none of them get picked out of thin air. None of them should rely on economic data analysis leading back to the era of the pony express. It’s always good to consider and re-consider the assumptions and then track the plan as it plays out.
Addendum: I didn’t win but found another game to play with the same kind of trickle down payout strategy. The odds of the grand prize is 1:300K, over all odds of wining something 1:7, In this game I’m looking at using a number choice strategy of most likely distributions as opposed to quick picks. I’ll limit myself to $100/yr and see what happens.