Chances of success

What are the chances of winning the lottery? I think I’m correct in saying that the UK was late to ‘the lottery’; not the raffles or ‘the Pools’, but the lottery itself. I suspect this was due to a cultural shift, which in other countries by 1994 had either happened sooner or wasn’t a significant impediment.

Most of us grew up being taught not to gamble; aware of the problems of addiction and the prospect of not simply debt but bare poverty. However our cultural myths and fairytales are full of a rags to riches, poverty to fortune narrative. We seem to believe (in the collective sense) that “it could be you” is an acknowledgment of the possibility that winning is a matter of a coin toss.

Jerry and Marge Go Large is a new film based around the story of a North American couple who play the lottery. However the twist is that Jerry is something of a maths genius and has spotted a flaw in a particular lottery, The WinFall, meaning that he can be assured of a win, indeed the larger his bet, the more he will win.

The story is set twenty years ago, at the turn of the century in 2003. In a world of algorithms and AI, it would seem unlikely that such a flaw would occur today.

Unusually the couple share their knowledge with their community, setting up a business to enable all those that wish to participate to do so. Over a relatively short period they amass winnings of over $27m of which a considerable proportion is reinvested into their local community.

Maybe I’m being pedantic, but I find it strange that someone who understands maths and probability, appears to a fail to understand investing principles. At one point Jerry is meeting with his financial adviser, rather late in the day to discuss his retirement. His adviser suggests he could achieve better returns with more exposure to equities. Jerry counters that he doesn’t want to lose his money and that anything where this is possible is gambling.

I’ve met this sentiment a lot over the last four decades. Holding shares in a few companies that you ‘like’ or have been ‘tipped’ about is, I would concede, very like gambling. There is a chance of permanent loss should those particular shares become worthless because the companies have all become bankrupt. Yet our evidence-based approach, which is not unique, but certainly not common, is to hold all the companies listed on various market indices. Some will become bankrupt, but most will not, most will survive and make profits year after year. For all the companies listed on markets to become worthless means that we are all in our worst nightmare of practical day to day survival, where money is almost certainly useless and most definitely not a priority.

I don’t know if this is what Jerry actually believes or if his financial adviser has failed to educate him about investing, but it is surprising given his knowledge of probability. I suspect that there is some artistic license taken with the script, which doesn’t aid ordinary investors, but yet again leaves them feeling a sense of having missed out on a sure thing that has now drawn to a close.

I enjoyed the film, it’s decent enough, but be assured that at Solomon’s, we focus on improving the chances of success for your financial plan and monitor this regularly. Hopefully you understand enough that we seek lots of marginal gains, cost control, asset allocation, suitable cash reserves, reviews and of course managing investor behaviour. In plain terms, trying to help you from blowing up your own plan because of the latest news or ‘brilliant idea’.