Gambling on the Present is a Gamble on the Future
Friday, March 20, 2009 | Ethan RobertsRating:
Over the weekend I saw an article about a Colorado woman, Cathy Ortiz, who lost her job as a truck driver last fall. Times have not been good since then, until a week ago when she spent four straight days gambling, and had a tremendous winning streak that netted her $50,000.On March 8th, she won $1,260 playing slots at a casino. The next day she won $500 on a state scratch off lottery game. The following day, she cashed in that ticket and bought 10 more, plus some other tickets, one being the "Powerball" game. Apparently for an extra dollar you can opt for "Power Play" which bumps the original $10,000 prize up to $50,000. A few days later she discovered that she had matched four of the five numbers and had the powerball number on the ticket. The odds of that happening are one in 723,145. Ms. Ortiz walked away with $50,000, and told a local reporter, "I'm a gambler and my husband is probably thinking 'Thank God, she finally got all her money back'."
Colorado lotto winner shows off her check...
A few weeks ago, I was in a convenience store, buying a cup of coffee (sorry Starbucks, I don't do $5 java). A kind of raggedy looking fellow on line ahead of me was buying $100 worth of lottery tickets. Now I have no issue with people who buy one or two tickets every so often for fun. But $100 of tickets? There was a time when I might have opened my big mouth and told him, "You know if you put that same $100 into a good growth mutual fund every month, in blah blah blah years, at yada yada percent rate of return, you will have $647,345."But what could I honestly say now? There was a time when you could say that stocks returned an average of 10 or 12% a year. But what is the return on the average growth mutual fund over the last 10 years? After two vicious bear markets, is it even in positive territory? How would I convince someone now who probably has never put money into stocks or funds that his chances for wealth are a lot greater through slow and steady investing than through buying lottery tickets?
Nevertheless, that is the reality. But you need a long term horizon, and desperate times call for desperate measures. So like Ms. Ortiz, in 2009 a lot of unemployed or struggling workers are willing to pony up what little money they have for a one in gazillion chance (I know, gazillion is not a word) to hit it big.
But here's the irony. MSN Money ran a piece not long ago about 8 lottery winners who lost their millions within just a few years. Incredibly, one New Jersey woman even won her state lottery twice in two years, for a total of $5.4 million, then lost it all (a good chunk of it to the slot machines in Atlantic City), and lives in a trailer today.
Another man, William "Bud" Post, won $16.2 million in the Pennsylvania lottery, then lost it all and lives on his $450 a month social security today. How did he lose such a large amount? He was sued for a share of winnings. Then his brother was arrested for hiring a hit man to kill him, hoping to inherit some of the winnings. Other siblings talked him into investing in businesses that lost money. A few years later Mr. Post himself was arrested for firing a gun over the head of a bill collector. He was $1 million in debt and later declared bankruptcy.
Lawsuits, bankruptcy, divorce, and even substance abuse are all typical outcomes when people who have no clue what to do with money, beat the odds and win a fortune. Part of the problem has to do with the common practice of the money being distributed in smaller amounts over many years. Say that after taxes you win one million dollars. Over 20 years, that's only $50,000 per year. But many of the winners come to believe that they are a "millionaire", and begin spending and giving money away like there's no tomorrow. Sooner than later, they end up broke and in trouble. Those who initially decline to give hand outs or "loans" to friends and relatives may find themselves alienated, until they give in to their demands. There is pressure from everyone to "do something" with the money, and usually it's to buy a fancy car or house, or to invest in complex businesses that the "lucky winner" has no clue about.
The state governments are partly to blame as well. Each winner is photographed holding the big check (like Ms. Ortiz above), to entice others to think they too can win the lottery. States know that poorer people are big lotto buyers (gee, I wonder why they are poor), and often advertise heaviest in the parts of town where the poor live. The irony is that to fund education, they exploit people who are uneducated about the lottery being a game for suckers.
There was a story going around a few years ago that still makes me laugh. I really don't know if it's true or not, but it's worth repeating. Seems there was an office worker who always bought a lottery ticket at lunchtime on Friday, then would put the ticket in his desk drawer and check the numbers in the newspaper the following Monday morning when he returned to work. One day his colleagues decided to play a practical joke on him. When the winning lotto numbers from the preceding night came out in the Sunday paper, they bought a new ticket with those exact numbers, then removed the man's ticket from the desk drawer and substituted the bogus "winning ticket" for the losing one.
When the office worker came in Monday morning, he checked his ticket like always. Assuming it was the same ticket he bought on Friday, he didn't bother to check the ticket date. When he saw that his ticket exactly matched the winning numbers in the newspaper, thinking that he'd hit the jackpot, he went bonkers! He turned over his desk, ransacked his office, then went straight into the boss' office, told him to go to you know where, and proceeded to announce his resignation!
After the hysterically laughing co-workers finally fessed up to what they had done, the poor sap had to clean everything up and go beg for his job back. Fortunately the boss had a sense of humor and did not hold it against him.
Humiliated man apologizes to the boss after winning lotto ticket is revealed to be a fake...
But the saddest story of all may be about the wife of one of the victims of the 9/11 terrorist attacks. Kathy Trant, wife of Dan Trant, a trader who died in the World Trade Center, says she spent almost all of the $5 million she received after his death. About $500,000 was spent on designer shoes! The rest was blown on trips, gifts to friends and strangers, and additions to her home. She later admitted that the money she spent was done in an unsuccessful attempt to reduce her grief.
Sudden desires to spend recklessly can also become a problem when people win a lawsuit, inherit, or otherwise come into large sums of money. You may remember the stories about some of the victims of Hurricane Katrina who received financial aid from FEMA, and then blew it on gambling and fancy hotels.
When one has struggled for awhile, there is often a long list of both actual and psychological needs that demand attention. Credit card debt, mortgages, car repairs, and college tuition are usually the first things to be remedied. But spending money on oneself can also become addictive, as the intense gratification one gets from being able to buy things they never could before, becomes overwhelming.
British woman ponders that age old question...
The best advice for those who come into a large sum of money quickly is to do NOTHING with it for several months, except to keep it in a money market or bank CD's. Figure out a plan for the money, whether that includes paying off debt, investing, or paying for worthwhile needs (college tuition, medical bills, etc.). Resist the temptation to buy something frivolous "because you deserve it". Take the time to decide what portion of the money you wish to give to charity, tithing, or to persons close to you who have legitimate needs (people with wild business ideas or wishing to buy a new car do not fit in this category). Do not rush into anything nor allow yourself to be pressured into making hasty decisions. People often fantasize about what they would do with a large sum of money, such as winning the lottery. Most will say they would buy a big house, a fancy car, travel the world, etc. As cited earlier, this is often a gamble on the present that depletes the future. Depending on how it is handled, a sudden windfall can either be turned into long term wealth, or destroyed within just a few years.
So I have a question for Tycoon readers today. Given the difficult environment today of the stock and real estate markets, and the low interest rates on bonds, money markets, and CD's, if you came into a large sum of money several months ago (and then followed my advice to do nothing with it for several months), where would you put that money to work in investments right now?
Would you buy stocks? Bonds? Real estate? Gold? Start a business?
The future is in your hands to control. What will you do? The best answers will get honorable mention from me in the comments section. I'd love to hear your thoughts!
See you next week!
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Ethan Roberts
Contributing Editor
The Tycoon Report
