I write about anything related to money on this blog. I also confess to being a utilitarian when it comes to my money. I must now confess that I spend way too much money getting my hair cut, and I also occasionally buy lottery tickets.
If I am to be judged by the countless others who write about finances, then I am a financial moron. I’ll wear this as a badge of honor.
Conversation on the Power of Luck
The woman who trims my hair tells great stories, which is why I’ll always go to her–even if I could get my hair cut cheaper elsewhere.
Recently, we were talking in general about the power of luck. She said to me that she couldn’t believe the people who were part of her high school graduating class and their success in running their own small businesses. By her observation, they were perhaps the dumbest people she had ever known.
How could they find so much success? I suggested that maybe it was luck.
What I mean by that is each successful business in operation today likely had some seemingly random event turn in their favor. Believe it or not, the successful shipping company Fedex was once on the path to bankruptcy. A lucky game of blackjack enabled the founder to secure enough capital to make payroll, later turning it into a company worth $25 billion at current Wall Street valuations. (Fedex trades under the ticker symbol FDX.)
I said to her that those who have success are those who properly manage their luck. They have cast out enough nets, but not too many, that the luck shines through enough to create a crazy amount of success. Those who aren’t successful either cast too many nets, effectively diluting their luck, or too few that they miss out on the luck as it happens.
She pondered the thought, agreed, and that was that.
Linking to finance
There’s something very important about the power of luck in our finances. When people talk about diversification in their investment portfolio, they’re really just using a big word to describe what is essentially luck.
In spreading out your investment dollars to the 500 securities in the S&P500 index, you’re spreading your money, and your luck. You’ll never do insanely well with the S&P 500; you won’t even match the return of the index due to annual fees, but you’ll do pretty darn well, and with reasonable consistency.
There will be a few S&P500 components that go broke. There will be a few that triple in price. Diversification wipes out bad luck, but also subdues, to some extent, the power of good luck.
Exactly why I buy lottery tickets
This conversation exemplifies my rationale behind the purchase of lottery tickets. While I am very much aware that I could save this $20 per year and turn it into $1,000—or whatever the hell amount is supposedly so large to be convincing—I also realize that $1,000 is nothing more than a drop in the bucket.
$1,000 isn’t going to change my world. Unbeknownst to most people, the Beatles actually wrote a song about the lottery ticket argument—“Nothing’s Gonna Change My World.” So ahead of the curve, those Beatles.
$100 million would change my world. Therefore, I conclude that despite all the mathematical evidence, the off chance that I win $100 million is worth far more to me than $1,000 in the future because $1,000 isn’t enough to change my life. $100 million is enough to change my life.
So I buy lottery tickets like a champ. These three things make the expense especially worth the cost:
- The feeling of a 1/100 million chance that I’ll be a multi-millionaire.
- The understanding that each dollar lost is one dollar dedicated to education, which may hopefully turn around the horror that is public schooling.
- The five minutes of fun that I have thinking about what I could do with $100 million. In particular, the fun of trying to turn it into enough to appear on the Forbes 400 list. These thoughts helped inspire ideas in my post titled “If I had a million dollars.”
I’ll keep buying lottery tickets because I simply don’t have enough exposure to pure and simple luck in my portfolio.
Are you long on luck?
Photo by: Spakattacks