STREET DOGS: Lightning in a bottle
‘The Investor’s Field Guide warns there is a big difference between what is probable and what is possible’
Lottery stocks entice investors because they represent new technologies and innovations that have the potential to lead to massive success if their new car/energy/ medical technologies pan out. The chance, however small, that one might catch lightning in a bottle is seductive enough to get investors buying. But, according to The Investor’s Field Guide, there is a big difference between what is probable and what is possible. Since 1963, the most expensive 10% of the US market has underperformed by 8.5% annually. If, since 1963, you bought every lotto stock in the market every year, 60% of those buys would have lost money in the next 12 months (and they’d have been down an average of -41%). Even though the remaining 40% made money, the entire group of lottery stocks has grown at a tiny 1.5% annual rate since 1963 — that’s worse than inflation, and significantly worse than the S&P 500, which grew at roughly 10% per year over the same period. The historical record is clear: it doesn’t p...
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