{"id":9102,"date":"2021-11-22T01:50:14","date_gmt":"2021-11-22T01:50:14","guid":{"rendered":"https:\/\/kuvera.in\/blog\/?p=9102"},"modified":"2021-11-25T06:42:26","modified_gmt":"2021-11-25T06:42:26","slug":"winning-the-investing-lottery","status":"publish","type":"post","link":"https:\/\/kuvera.in\/blog\/winning-the-investing-lottery\/","title":{"rendered":"Winning the investing lottery ?"},"content":{"rendered":"\n\n\n
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The Lottery, with its weekly pay-out of enormous prizes, was the one public event to which the proles paid serious attention.<\/p>\n

Where the Lottery was concerned, even people who could barely read and write seemed capable of intricate calculations and staggering feats of memory.<\/p>\n

There was a whole tribe of men who made their living simply by selling systems, forecasts, and lucky amulets.<\/p>\n

: George Orwell, 1984<\/p>\n

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In last weeks newsletter<\/a> I wrote:<\/p>\n

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In 40 years of market data\u00a0the odds that your thematic basket manager\u00a0would string a 15 year track record of extraordinary performance (i.e\u00a0market beating)\u00a0is ~ 1 in 32,000. that is\u00a00.003%.<\/em><\/p>\n

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The takeaway was\u00a0that the\u00a00.003% odds are so\u00a0minuscule\u00a0that you might as well invest in a low cost\u00a0index instead of chasing hot new managers with hot new themes.<\/p>\n

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Not everyone bought it. But what about Warren Buffet, Peter Lynch and\u00a0so many\u00a0other\u00a0famous investors with unbelievable investments streaks they said. How could the odds be so low? They have to be higher, much higher. Part of it is\u00a0because people\u00a0want the odds to be higher for themselves, they want to achieve these outstanding investment returns.<\/p>\n

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Let’s look\u00a0at the\u00a0lottery to see what we can learn about this situation above. Let’s say 10,000\u00a0people each buy one lottery\u00a0ticket including you. It is straightforward that your odds of winning the lottery is 1 \/ 10,000. That is 0.01% The lottery will eventually have a winner, so the odds that someone will win the lottery is 100%.\u00a0We just don’t know who that person is. But because such people exist, they have to as someone will\u00a0win the lottery, would you think your odds of winning the lottery goes up?<\/p>\n

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It’s pretty much the same concept with investing.<\/p>\n

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Let’s go back to my example with\u00a040 years of market data and 8,000 thematic basket managers. Just like the lottery, the odds that after 40 years we will have\u00a0one manager that had a 15 year investing streak\u00a0is 3\/4 i.e 75%. Yup, that high!<\/p>\n

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Of\u00a0course, just as in a lottery we will have no way of knowing who the manager is and when the streak will start. But rest assured someone will win the investing jackpot too.<\/p>\n

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The basic confusion here is that\u00a0the probability that an event will happen leads us to\u00a0overestimate the probability that the event will happen to us. The visible winners make the event more likely especially when the losers are hidden and out of sight. In lotteries, it is public knowledge about how many people played the lottery and who won, so calculating probabilities is easier. In investing\u00a0no one talks about losing portfolios making it seem like investing is easy and the probability of stupendous investing gains is something that can easily happen to us.<\/p>\n

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There are many investing lessons hidden in lotteries, but the most important one is encapsulated beautifully in this joke.<\/p>\n

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Every night, a man prays to God, “Please god, let me win the lottery tomorrow”. Years go by and the man continues to pray. Finally, one night he\u00a0says, “I am asking you for the last time God, let me win the lottery tomorrow”. And\u00a0God replies, “Okay son, but\u00a0help me this time\u00a0and buy a freaking ticket!”.<\/p>\n

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Happy investing,
\nGaurav
\nCEO | kuvera.in
\n@rustapharian<\/a><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

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Interested in how we think about the markets?<\/h5>\n

Read more:\u00a0Zen And The Art Of Investing<\/strong><\/a><\/p>\n

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Watch\/hear on YouTube:<\/p>\n