Saturday, April 7, 2012

Lottery and Stock Market : Observations and Comments

Lottery

Last week the mega million dollar lottery frenzy swept the nation. The last two days to the final drawing ABC news reported that "the mega million dollar lottery is the talk of the nation", "people waited for 3 to 4 hours to buy lottery ticket" at some lucky stores. Consumers are forewarned - their chance of winning is nearly zero, 1 in 176million, people still playing - because there is a guaranteed winner(s). Many people wanted to take a chance with $1, $10 or even $100 purchase of lottery tickets .......approximately 100million people played the lottery, purchased $1.5billion lottery tickets - the final jackpot was $640million. Friday night, March 31, three winning tickets were sold at three different states - Kansas, Illinois and Maryland.

In essence, what happened in the lottery was that money transferred from millions of lottery ticket buyers to the three winning persons and the lottery agencies at participating states.

What does the phenomenon tell us? In addition to the lottery winners, the real guaranteed winners are the lottery agency. Most people who played the lottery are losers; the poorer they are, the higher percentage they lose from their total wealth.

People complain about concentration of wealth, economic inequality; but they also actively participate in making some of the inequalities. In this mega million lottery, 100 million people made 3 100-millionaires because everyone thought they had a shot. 

Seemingly everyone was playing it according to the news media. The fact was that not everyone played it, only 33% of the population.

Stock Market

Late 2011, "Occupy Wall Street" movement swept the nation. The movement's initial target was Wall street - protesting the greed and corruption of financial industries. With their slogan "We are the 99%", the movement evolves into a class warfare of "not so rich" against super rich - at least in the world of news media.

Wall street greed and corruption was a main reason behind Tech bubbles in 2000, Housing bubbles in 2008. But consumer behavior was a main reason as well

High tech bubble in 2000 was created by financial industry, hyped by news media, and propelled fast forward by consumers. I remember that during those years - people boasted almost daily about how high a return they had earned on tech stocks , those not in play jumped in - at the height of the bubble - pushing tech stock price higher and higher. The bubble burst, many people lost a lot of money. Where did the money go? The operators - the wall street financiers. Similar thing happened during housing bubble.

In a nutshell consumers helped to create the bubbles - because everyone wants to have a piece of the pies. The real winner is the operators - Wall Streets, 99% of consumers are losers.

Just like lottery, consumers are forewarned - investment include risk - one may lose part or all of their investments

Comparisons

What are common between lottery and stock market: majority of customers are guaranteed losers, operators are the only guaranteed winners.

The difference? In lottery, consumer only pay a tiny portion of their income to get a shot at winning, in stock market, consumers pay their life's saving for a good return. In stock market, companies could manipulate their financial statement to fabricate profit so to lure investor to purchase their stock, run up the price, Remember ENRON? financial institutions or individual financiers could fabricate gains to lure investors to lure investors to purchase investments from them - most recent examples Texas billionaire Allen Stanford's banks, and Ponzi schemer Bernard Madoff. In addition, there have been numerous inside tradings, some investors using inside information to take advantage of other investors; some super rich individual or investment groups use their sheer wealth to influence market, such as purchase large amount of a stock to run up its price, and then dump the stock. ..................

So lottery is "squeaky clean" compare to stock market.

My positions

I don't play lottery - so I have no chance to become super rich from a one dollar lottery ticket.

I don't actively participate in stock market - so I have no chance to be rich from a stock market rise, and I wouldn't lose too much when stock market crashes.

I don't envy people who become rich through what ever means within the laws. But I do wish that those, individuals or institutions, who gain through fraudulent ways, the swindlers and criminals in the financial world be punished. I also wish our laws regarding commerce and finance strengthened and actively enforced,
I am content with being an ordinary person and I enjoy it.

1 comment:

  1. Excellent analysis–and definitely something I haven’t seen done before. Looking forward to seeing what comes of this!

    ReplyDelete