January 11, 2016
What we’re reading this week
Business Insider reported on a Fox and Friends segment during which they advised people buy as many lottery tickets as they can afford as a strategy for winning the lottery. Their “simple strategy” showed that buying more tickets maximizes your chances of winning. While this is technically true, it is the worst financial advice I have ever heard. This is problematic for two reasons. One, you still have astronomically low chances of winning. “Buying 10 tickets and giving yourself a 10 in 292,201,338 chance still leaves you about six times as likely to die in a plane crash as you are to win Powerball.” Additionally, the calculations get worse when you consider expected value of said tickets. Expected value calculations are typically used to assess gambling outcomes and can be found by taking all of the possible outcomes of the process, multiplying each outcome by its probability, and adding all of these numbers up. In this scenario, assuming you take the lump sum, these tickets have a negative expected value. Put differently, every ticket one buys represents a likely loss of money. I just used fancy math to tell you what you already know, that buying a ton of lottery tickets only increases the odds of you loosing money. Thanks Fox and Friends…
More The Lotto
These is no shortage of articles on the lottery right now. We have everything from “buy as many as you can afford” to “buy no lottery tickets ever.” While my personal view is somewhere in the middle, this article from the New York Post is one of my favorites. They break down a strategy that only a math nerd can love: buying all 292.2 million combinations of Powerball numbers to the tune of $584.4 million dollars to guarantee a win of $1.3 billion. They use boring math and reason to explain why this is a terrible strategy but they go one step further to acknowledge that the act of buying that many tickets is, itself, the greatest drawback to said strategy.
Hedge Fund Managers
The New Yorker did a profile of Damian Lewis, an actor who plays a hedge-fund manager in the upcoming “Billions.” He studied hedge fund managers for his role and found “hedge-fund guys…to be very, very concentrated listeners—watchful and articulate and quick to defend, if needed,” Lewis recalled. “They all seemed to have this contained sitting posture. The legs, if they weren’t crossed at right angles, tended to be close over the knee, their hands put together.” This supports what I have been saying for years, if you want to manage money like a professional, cross your legs like a professional!
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