Have you read Seth Godin‘s What you buy when you buy a lottery ticket? You should. Actually, go read it so that my post makes more sense to you.
As I read it it made me think about investing. Is it similar to the lottery for people? Do you think people invest to get rich or just for the thrill? The biggest differentiator may be that with the lottery you expect to lose and with investing people expect gains. You don’t really expect to get rich in either event but that is the ultimate hope and dream right?
The lottery is just a random drawing of numbers. No one wins those things. So you throw a few dollars at it in hopes of a miracle but expecting nothing. You could even argue that the best thing for the lottery are the smaller prizes. How many times have you won $2, $5 or $10 on a scratch off ticket and just used it to buy more tickets. You want to continue the journey and feel that thrill again. The small prizes make you play more. They show you the possibilities. It’s a taste of the thrill. It keeps you playing. And the best part is this time it doesn’t feel like you’re spending money because it’s winnings going back in.
Investing might be more corrosive. You play with larger amounts of money. You have more of a feeling of control. Especially since you are picking which companies or people to invest in. You do your research and there is no reason you won’t make money, hell, with a little luck you might get rich. Are people disciplined enough for this? How is it that the average investor continues to trail the market badly? Is it the “thrill of possibility”?
Unfortunately, most people don’t have a full understanding of the market. Even the money managers aren’t right all the time. The Bogleheads tell us that you can’t beat the market in the long run. So do you try just for the thrill? Is it the short-term wins that keep you investing?
Maybe this conversation should be reserved for penny stocks or small caps. Isn’t that more similar to the lottery? A lot less expectations, a better chance of losing it all. What if they aren’t doing it for the money but for the chance that it will pay off bigtime?
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I think playing the lottery and investing has some resemblance on gambling especially for those types of investments that are considered very risky.
However, in investing, we need to do calculated risks to lessen the risk of losing our money. Moreover, the likelihood for success in investing is definitely more than as compared to winning a lottery.