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3 Lessons From the Powerball Craze

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Once again, a national lottery has hit the coveted half-billion-dollar mark, and millions of people have lined up for their shot at unimaginable riches. Before the drawing, the news was full of discussions of how unlikely it is to win a lottery and how irrational it is to buy tickets. And now that the winning numbers have been drawn, you can expect to see countless pieces of advice for the winners.

Instead, I want to focus on how you can use the lottery experience to get smarter about money. You won't find a categorical dismissal of lottery-playing in this article, but the way you respond to the possibility of having hundreds of millions of dollars fall into your lap can actually tell you a lot about your financial temperament, giving you valuable information to make you a better investor.

Answer the following questions and see what you can learn.

1. How many tickets did you buy?
By now, just about everyone is familiar with the 1-in-175-million odds of winning the Powerball. Combine that with the likelihood that multiple players will pick the same winning numbers, and it becomes almost impossible to have a positive expected value from playing, from a purely economic standpoint. So if you didn't play at all, you have a very clear head and should be better able to consider investing decisions unemotionally.

For a couple of dollars, buying a single ticket isn't a crazy proposition. Given how much money many people throw away on other forms of entertainment, the value you get could well be worth $2. A willingness to take some risk in order to get an outsized payoff is a useful investing trait.

More troubling is if you were among those spending hundreds or even thousands of dollars on tickets. Making big bets when the odds are against you is a recipe for potential disaster, and it's similar to what investors in certain types of exchange-traded funds have suffered. United States Natural Gas (NYSEMKT: UNG  ) , for example, hit investors not only due to falling natural gas prices but also because the characteristics of the natural-gas markets created built-in costs that added to losses. Similarly, leveraged ETFs Direxion Daily Financial Bear 3x (NYSEMKT: FAZ  ) and ProShares UltraShort Silver (NYSEMKT: ZSL  ) hammered investors with huge losses when the markets they tracked went against them, while not providing them with enough gains during good times to offset those losses.

2. Are you planning to play again?
When the jackpot is particularly high, there's a better argument in favor of playing the lottery. But if you make a habit of playing even when jackpots are relatively low, it suggests that you don't think there's any realistic way for you to get rich more slowly.

Lack of patience is a tough thing to crack in investing, but staying patient is easier if you can get in the habit of adding money to your investment portfolio regularly. That way, you'll see your balance grow even in flat markets, and you'll have the satisfaction of buying more shares at cheaper prices when markets act badly.

3. Do you look for a hidden angle?
Theories about winning lotteries abound, with everything from choosing your own numbers rather than letting the computer choose to researching past winners. Trying to beat the lottery may be a lost cause, but a willingness to go beyond simple methods to find potential winners is an excellent trait.

For instance, rather than playing the lottery, you may want to look at Scientific Games (NASDAQ: SGMS  ) , the company that provides support services for the Powerball. Predictably, its shares have soared recently as the Powerball gets more attention than usual. But earlier this month, Scientific Games fell sharply on weak earnings, with the company's presence in China proving most disappointing. Scientific Games is far from a sure bet, but it's a recipient of part of every dollar that gets wagered on many lotteries.

Be smart -- and lucky
In the end, investing combines intelligence, skill, and a bit of good fortune. If you can put together that winning combination, then you'll probably prefer to put every spare dollar into your portfolio over playing the Powerball -- at least more than once.

Rather than gambling with your money, the best investing approach is to choose great companies and stick with them for the long term. In our free report "3 Stocks That Will Help You Retire Rich," we name stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

Read/Post Comments (21) | Recommend This Article (28)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 29, 2012, at 2:16 PM, pondee619 wrote:

    "How many tickets did you buy?" Two on my own and Four dollars total with two groups. I'm out eight bucks. I took a shot.

  • Report this Comment On November 29, 2012, at 5:19 PM, Thaeger wrote:

    -Playing- the lotto isn't stupid; you're spending a couple dollars to fantasize about 'what if' for a day or two. -Investing- in lotto tickets is where it gets dumb.

  • Report this Comment On November 29, 2012, at 5:52 PM, eldetorre wrote:

    "it suggests that you don't think there's any realistic way for you to get rich more slowly."

    For 99% of us this is true, nothing to do with lack of patience, just acceptance of reality. I'm 50 and have put away, including my employers contribution, over 20% of my salary annually for 20 years. Even projecting a decent return I will never be rich.

  • Report this Comment On November 29, 2012, at 6:00 PM, dagrman wrote:

    " Are you planning to play again?" By itself, it really doesn't tell us much. It's really a qualifier to #1: cheap entertainment versus a serious lack of patience.

  • Report this Comment On November 29, 2012, at 6:26 PM, branchre wrote:

    Yeah, I bought a couple of tickets, didn't even have to go out of the way to do it. And enjoyed watching the draw......well worth it and worth more than some of the investment advice I have gotten from the talking heads on CNBC.

  • Report this Comment On November 29, 2012, at 6:38 PM, mahaff wrote:

    People who trade ung or other etf's that don't understand what they are trading should do som research. There funds reset after each day of trading. So, for example, if it is up 10% one day and down 10% the next, the investor is down 1%. do the math. If you hold these invesments long term, you will lose money unless ther is a straight up or straight down move and you bet the right way. Otherwise, the volatility will crush you.

  • Report this Comment On November 29, 2012, at 8:14 PM, jm7700229 wrote:

    Back in the '80s, a friend insisted that I buy into a big lottery payout. I went along for $2. Maybe I won; who knows -- I never checked the ticket. A relative just loves to gamble. He would drive (non-stop) from Chicago to Las Vegas, just to play in Vegas for a couple nights. He never lost more than $100, never won more either. It was fun for him. Although I really dislike games of chance, I can understand that some people enjoy it. Sadly, most think they can win big if they just go for one more pot. I feel badly for them.

    I often see people at the gas station buying 2 packs of cigarettes and 5 Lotto tickets. Proof that few Americans understand statistics.

  • Report this Comment On November 29, 2012, at 8:49 PM, MoreIsNotEnough wrote:

    We can't buy Power Ball tickets out here in CA, but I would have put $2 in, just to put my name in the hat. I agree with the article. The only time I've bought lottery tickets is when the pot is over $50 million (again, just one to put my name in the hat), and before I retired, I'd get into the office pool, for fear of being the only one left if they hit it big ;-)

  • Report this Comment On November 29, 2012, at 9:15 PM, tbenn210 wrote:

    I like to play the BIG lotto a couple of time a year. I never spend more than $5.00 a year, but what great entertainment I get. What would I do for others? What would I do for myself? I entertain myself with day dreams for far less than the cost of a movie I may or may not like. (OK, saw Skyfall, it was worth it!)

  • Report this Comment On November 29, 2012, at 10:49 PM, RouteReflector wrote:

    I set up an office pool at work for my team on big jackpots. We've done it twice; once for the $600+ million Megamillions and once for this past Powerball.

    I don't think any of the team has realistic expectations of winning, but it's fun for a couple days of "imagispending". From my perspective in particular, as I've got a large team working for me, it's an inexpensive and effective team-building event since everyone joins together and spends some time throughout the day joking around about the different payouts and what they'd buy.

    We had 28 people join this time, all chipping in $10 each. We "won" $27 total.

  • Report this Comment On November 29, 2012, at 11:31 PM, petrogold wrote:

    Mere winning a big lottery will never ensure your happiness. It is better to be content with what you have & play sometime to enjoy as mcuh as you can easily afford it than become crazy! Your health is most imprtant than money.

  • Report this Comment On November 30, 2012, at 12:45 AM, SkepikI wrote:

    Looked at one way, my $2 for a ticket was a weird and irrational exercise in cheap fun. it served to confirm my lack of luck and intelligence in mainly depending on diligent value additions and thoughtful investments.

    Looked at another way, it was a perfectly probabilistic rational decision to buy a chance for $2 when the jackpot and odd made one ticket have an "expected value" of $2. Of course AFTER the drawing it had an actual value of ZERO. The fact that I hit not a single number a rational reminder that bad outcomes are likely when you have no way to predict good ones....

  • Report this Comment On November 30, 2012, at 6:34 AM, ostreger wrote:

    I LIKED Powerballs, and relinquished mine only with regret when it ceased to be compatible with the current version of Windows; I am of course referring to the inverted mouse that once was popular.

  • Report this Comment On November 30, 2012, at 7:41 AM, TMFGalagan wrote:

    @skepiki - Given the likelihood of multiple winners, as well as the taxes on winnings and the fact that winners who take lump sums only get a discounted value from the headline number, the expected value was still less than $2.


    dan (TMF Galagan)

  • Report this Comment On November 30, 2012, at 7:45 AM, TMFGalagan wrote:

    @dagrman - Understand your point, but I think follow-up behavior can tell you even more than just the initial play. Some people, for instance, will probably play the lottery *more* now, especially those who feel like they "got close" with some of their numbers, even if jackpots are smaller. Knowing that about yourself can be really valuable.


    dan (TMF Galagan)

  • Report this Comment On November 30, 2012, at 7:48 AM, TMFGalagan wrote:

    @eldetorre - It may surprise you, but having 4-5 years' worth of salary set aside, plus whatever returns you've been able to earn on that money, does in fact qualify you as "rich" compared to the vast majority of retirement savers. It won't make you rich enough to ignore money concerns entirely, but it will give you flexibility that millions of others will never have. Well done!


    dan (TMF Galagan)

  • Report this Comment On November 30, 2012, at 9:04 AM, TMFDarwood11 wrote:

    My spouse and I are not interested in the gaming that we call "gambling."

    We visited relatives a few years ago in LasVegas and stayed at a very nice hotel on the strip, did a lot of people watching, etc. My spouse spent $5 at the slots and I spent zero. We went on to St. George and Zion National Park. That was a lot of fun and my spouse wants to go back. Vegas, however, is not all that attractive to us.

    There is an incredible amount of entertainment available in the area in which we live. So for instance it's a choice.of spending $5 for a fresh bag of decadent cheese-caramel popcorn, or an occasional latte, or a lottery ticket.

    I generally ignore the state lotteries, I just can't get all that excited about that stuff. Once a year or so I think of buying a lottery ticket, but then I shrug it off. It's a choice of what to do with my money. We decided this week to buy $100 worth of food store gift cards for needy families requested by the local church. I think that is a better use of my money.

  • Report this Comment On November 30, 2012, at 9:14 AM, TMFGalagan wrote:

    @Darwood11 - I'm right there with you. My favorite thing to do when I fly into Vegas is to take advantage of the ridiculously cheap rental car rates and get out of town. Boating down the Colorado, heading to Death Valley, climbing at Red Rock - *those* are sure bets every time.


    dan (TMF Galagan)

  • Report this Comment On November 30, 2012, at 9:53 AM, leomeister wrote:

    I think there are segments of the population who don't know how else to "invest" their money, and lotto is a pretty easy concept for--quite literally, anyone.

    I also subscribe to the notion that major part of it is cheap entertainment, and you're in it with "everyone" else--like everyone attending a party and seeing who wins the money tree door prize.

    I'll spend $1 - $10 depending on how much my mom bugs me to buy tickets over text messages--which is often when the lotto prize gets this big.


  • Report this Comment On December 01, 2012, at 5:57 AM, mikecart1 wrote:

    0 tickets this time and forever.

    They say "you miss 100% of the shots you don't take"

    In this case, the quote doesn't apply LOL.

  • Report this Comment On December 04, 2012, at 5:37 AM, Sunny7039 wrote:

    I never buy when the pot is big, and I surely didn't this time.

    Who confuses investing with gambling? I mean other than a big chunk of Wall Street and the City.

    A lot of games have better odds than Powerball, and a huge jackpot doesn't attract me because I don't want the loss of privacy. Nor do I need or want a drastically different life.

    Actually, to be restored to our 2006 net worth would be enough money for us. Funny how that is.

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Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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