Fool.com: The American Lotteries Fund [Fribble] May 17, 2000

Fribble The American Lotteries Fund

By chris@tbo.net (Chris Arndt)
May 17, 2000

Everyone Foolish knows what a bad investment lotteries are. However, the recent record Big Game jackpot of $350 million rekindled an idea I have toyed with every time a big jackpot comes around.

Consider the following scenario. The odds for the Big Game were reported in the local paper as "one in more than 76 million." The exact figure from the Big Game website is 76,275,360. The lottery tickets cost $1 each. The final jackpot was reported as $350 million. If I had enough money, I could have gone to the lottery commission, plunked down a check for $76,275,360, and bought one of every possible ticket in that game. (I'm not sure the local 7-11 could handle that transaction.) I'd be assured of winning at least a share of the big prize. Even if I had to share it with the other two "real" winners of that jackpot, a third of $350 million is still more than $116 million. Not a bad return on my investment, eh? If my calculation is right, that's better than 53%!

Not only that, but by virtue of buying every possible ticket, I automatically win all of the other prizes too. Using numbers from the website, I calculated that the total additional winnings would be $12,528,147. This brings the total theoretical return on investment up to over $128 million dollars.

Now I don't personally have that kind of money. But a lot of lottery players pool their money together and buy a larger block of tickets, thereby spreading the risk at the cost of a lower potential return. Hmm, sounds like a mutual fund to me.

Therefore, I propose starting the American Lotteries Mutual Fund. The purpose of the fund will be to pool the investments of the fund shareholders, with the sole purpose of purchasing 100% of the possible tickets in lotteries whose jackpots plus residual prizes total at least, say, 200% of the buy-in. As always, the wise Foolish fund manager will backtest the investment strategy against all of the lotteries and payouts to make the percentages reasonable.

So who wants to buy some ALMFX shares?

(As always, you should review the fund's prospectus before investing any money, blah, blah, blah.)