#277732 - 17/03/2006 20:52
Stock Market
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carpal tunnel
Registered: 25/12/2000
Posts: 16706
Loc: Raleigh, NC US
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All this talk about gambling has made me think of the stock market again. I always say that the stock market is gambling, pure and simple. Others, especially those with interests in the stock market as an institution, claim otherwise. It seems to me that the heart of this conundrum is where the money you make comes from. And there doesn't seem to be a lot of consensus. Looking around, the Motley Fool would seem like a reasonable source of information, albeit one biased toward viewing the stock market not as a pure gambling proposition. Here are some things they had to say on the subject: Quote:
Unless we're talking about initial public offering shares, the reality is that [a business] will never see [money changing hands in a stock transaction]. Instead, a brokered transaction takes place on the secondary market between a buyer and a seller, neither of whom usually have any connection whatsoever with [the business] outside of a stock certificate.
So they're saying that there's virtually no connection between the holder of the stock certificate and the company. But then, later in the same article:
Quote:
The stock market is a bit more complex than that, with wealth created not just by the supply and demand tug-of-war of the market itself but by the underlying value creation ability of the individual companies that make up the market.
So now they're tying the value of a stock certificate to the company's performance. And that's certainly the way it mostly seems to work in real life. But why?
Here's where my probably mistaken understanding comes in: Once the IPO is done (ignoring other stock trades), the company in question never sees another dime as a result of the price of their stock. In addition, the people who own stock, while they technically own a piece of the company in question, don't get any direct benefit from the productivity of the company, with the apparently rare exception of stock dividends. (Maybe I'm mistaken in their rarity.) So basically, people are willing to pay more for the stock of a company that is doing well. But the link between the profitability of the company and the value of the stock seems tenuous at best, to completely psychological. It seems to me that the initial desire to own stock is based in the fact that it might be neat to own a piece of Microsoft or whoever. But it also seems that that initial desire has been lost, much like the initial argument of a long-standing feud.
Basically, what I'm getting at, is that there must be some inherent value to stocks that I'm missing. Otherwise, it seems to me that people are just buying monopoly money.
Someone please show me how I'm wrong.
But then on top of that, even if I'm completely mistaken about the missing link between stocks and the company, it's totally demonstrable that the value of stocks are completely at the whim of human psychology, ranging from the abstract desire to own a piece of Microsoft, to misunderstandings of earnings reports, to the dissemination of deliberately misleading information, to manipulation of stock prices by creating runs. This sort of thing is perhaps rare, but certainly existant nonetheless. When that sort of thing exists, how can it not be considered gambling? The risk would certainly be inversely proportional to the rarity of those sorts of pshychological events, but it's risk nonetheless.
And none of this is intended to imply that it's impossible to make money at it. It's obviously possible, as it's also possible to make money playing poker, which the stock market reminds me of (with people competing against each other and the "house", in this case brokers, taking a cut of each transaction).
There's also the argument that it's not a zero-sum game, which I think has problems, though may technically be true, which I might get into if someone can get me understanding the first part of this.
_________________________
Bitt Faulk
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#277733 - 17/03/2006 21:41
Re: Stock Market
[Re: wfaulk]
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pooh-bah
Registered: 12/02/2002
Posts: 2298
Loc: Berkeley, California
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Value is always arbitrarily based on what someone is willing to pay to own something. All investing is trying to increase the amount someone is willing to pay for something. Traditionally, stock prices have been based off future earnings potential. Where this gets tricky is that companies these days rarely give you this money back, they generally reinvest in order to create more value for the owners, hence the stock of the price increases as the earnings are reinvested in order to give it a greater future earnings potential.
This odd system without actual dividends paid out mainly comes from the doubble taxation of corporate earnings when they're paid out to investors.
So all stock prices are based on the rampant speculation that the company will earn money in the future.
Matthew
Edited by matthew_k (17/03/2006 21:42)
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#277734 - 18/03/2006 00:29
Re: Stock Market
[Re: wfaulk]
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old hand
Registered: 15/02/2002
Posts: 1049
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Quote:
So now they're tying the value of a stock certificate to the company's performance. And that's certainly the way it mostly seems to work in real life. But why?
Here is my understanding of this. One way to see a company, or a business, is a "black box" that converts inputs into cash. The inputs are primarily people and "capital". In a more general sense, the inputs are "capital" and "operating expenses", and people fit into the "operating expenses" category along with utilitiy bills, pencils, etc.
Take a look at the "capital" input. In this model, capital refers to the fixed assets that are required to make the product or service that the company produces. If your company is going to create CPUs, then you're going to need a very expensive factory in which to create them.
The key, however, is that all of this exists to create a product that can be sold for a higher cost than its inputs. In other words, this whole enterprise (hopefully) creates a net surplus of cash. In my mind I am thinking of a black box with a big crank. As you turn the crank, money spits out. First, we need to build the black box itself, then we need to turn the crank. Building the black box is investing capital, and turning the crank is spending operating expenses.
A company can raise capital by selling part of itself in a public offering. Usually, companies do this to raise capital to build the first incarnation of their black box.
As the company hums along, generating cash, there are a couple of things it can do with this excess cash. It can either pay that cash out to the owners of the company (this is what a dividend is), or it can reinvest the cash in the business to make the black box larger and more efficient at producing cash.
You can see Return on Invested Capital, which Warren Buffett says is a primary consideration in evaluating a business, is so important. This is a measure of how much cash the black box generates compared to the cost of building it in the first place. A box that costs $5 to build and produces $0.25 per month is better than a box that costs $25 to build that produces the same $0.25 per month. That's return on captial: how efficient is the business?
So you can start to see the "black box" as something that has some real value! It is a creation that generates wealth by creating products and services of value.
As the company generates cash (income), if it chooses to reinvest the cash into the business and does so wisely, it can make itself more and more valuable. In my model, the company is choosing to invest the cash that comes out of the black box in creating a better and better black box. Or, the company might purchase a second or third black box (acquisitions, or expansions into other markets).
Imagine you bought 1% of a company when it just started out. They were raising capital to build their black box. It turns out they built a very good one and they were able to generate a lot of cash. The company kept investing the cash it created into expanding and improving the black box. In other words, it made its black box more efficient at producing cash, and thus more valuable. It should be clear, then, why your 1% ownership of the company should increase in value.
The stock exchange is fundamentally about people exchaging their shares of ownership in companies based on whether they believe the money they are being offered for their shares today is a better deal than the increase in value of the company over time.
From a theoretical point of view, a stock *should* be worth the net present value of all of its future net cash flow. In other words, it is worth the sum total of all cash the black box will ever generate, but expressed in today's dollars. Think about it. If you had an actual black box with an actual crank that could make money, what would you sell it for? A fair price would be all of the money it could produce in its lifetime, adjusted for today's dollars. (Actually, you would need to subtract the cost of someone turning on the crank, which is why I use the term future *net* cash flow -- net of the cost to turn the crank).
It is unknowable exactly how long or how effectively any particular black box will perform. That means it is unknowable what the price of the business *should* be, because that involves knowing what the sum of all future cash flows will be. And *that* is why it appears to be gambling.
In fact, it *is* a form of gambling. However, like poker, chance is not the only element involved. People are trading things that have *actual* value -- fractional ownership of a black box that is generating cash.
In cases like the "dot com bubble", what is happening is that people are buying shares of a (now) unprofitable company because they believe that the black box the company is building, when they finally get it built, is going to generate a tremendous amount of cash. That is a *prediction*, there is no way to know this exactly, just like there is no way to know if 5th street is going to bring you the flush card to give you a winning poker hand.
You can see the consequences of this: it is possible to profit off of people's mistaken impressions. And so the market mechanism itself becomes a source of "profit" totally independent of the black boxes generating cash. This aspect is indeed a zero-sum game. But underlying all of it is businesses that are creating things, creating wealth.
Jim
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#277735 - 18/03/2006 00:48
Re: Stock Market
[Re: TigerJimmy]
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carpal tunnel
Registered: 25/12/2000
Posts: 16706
Loc: Raleigh, NC US
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The problem with all of that is that you assume that somehow you can ultimately trade your shares in to get your percentage value of the business. But you can't. All you can do with it is sell it to someone else.
Once the company has sold its shares, in an IPO or later, those shares are no longer really attached to the company. Sure, if you managed to collect more than 50% of the shares, you'd magically become the effective owner of the company. Similar deal if you had a plurality of the shares. But for the common man who owns 10 shares of Microsoft, it has no inherent value. You cannot get any money out of it other than selling it to someone else, who, in turn, cannot get any money out of it besides selling it to someone else.
There's no way to "redeem" your shares. You can't go to the company with your shares and tell them that you'd like to trade in your hundred shares for, say, one of their computers. They'd tell you to go jump in a lake.
It's effectively just a shiny bauble you can line your nest with. Fortunately, a good deal many other people seem to like those shiny baubles just as much as you do.
_________________________
Bitt Faulk
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#277736 - 18/03/2006 04:16
Re: Stock Market
[Re: wfaulk]
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carpal tunnel
Registered: 13/02/2002
Posts: 3212
Loc: Portland, OR
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Quote:
There's no way to "redeem" your shares. You can't go to the company with your shares and tell them that you'd like to trade in your hundred shares for, say, one of their computers.
Usually. However, there are cases where a company, when it's doing well, will buy back some of the shares that are out on the market.
But yeah, I'm with you. I don't really understand where any of the money comes from. And that's just simple trading. It gets crazier from there when you start thinking about buying on margin, futures, and all the rest of the strange things they do. 
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#277737 - 18/03/2006 05:30
Re: Stock Market
[Re: wfaulk]
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journeyman
Registered: 29/01/2001
Posts: 89
Loc: New Jersey, United States
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Quote:
The problem with all of that is that you assume that somehow you can ultimately trade your shares in to get your percentage value of the business. But you can't. All you can do with it is sell it to someone else.
Once the company has sold its shares, in an IPO or later, those shares are no longer really attached to the company. Sure, if you managed to collect more than 50% of the shares, you'd magically become the effective owner of the company. Similar deal if you had a plurality of the shares. But for the common man who owns 10 shares of Microsoft, it has no inherent value. You cannot get any money out of it other than selling it to someone else, who, in turn, cannot get any money out of it besides selling it to someone else.
There's no way to "redeem" your shares. You can't go to the company with your shares and tell them that you'd like to trade in your hundred shares for, say, one of their computers. They'd tell you to go jump in a lake.
It's effectively just a shiny bauble you can line your nest with. Fortunately, a good deal many other people seem to like those shiny baubles just as much as you do.
Thank you
I try to point this out to some people and they just don't understand.
now for a bit of fun can anyone guess where the attached pic was taken and what it is?
_________________________
The only difference between science fiction and reality is about 60 years.
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#277738 - 18/03/2006 05:50
Re: Stock Market
[Re: n2toh]
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old hand
Registered: 15/02/2002
Posts: 1049
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Except that it just isn't true.
Imagine you bought a partial share of a boat or an airplane. Just because you can't redeem your share to the party from whom you originally bought it doesn't mean that your share is worthless or just based on emotion. You can sell your share to another person. The market mechanism is precisely what ensures that it retains value. You can sell it to someone else. Sure, you can't show up at IBM's door and ask for a computer, but you can sell your share to someone else, and that's just as good.
I understand the point you're making. But its not true that the stock is disconnected from the company after the IPO. If the market value of the stock does not reflect the value of the company, then the company can just buy back those shares to regain total ownership. In fact, the company WILL do this if there is too much differential between the market value and the book value of the stock. If the company doesn't, another company will. If they do, they need to redeem you for your shares because you own part of the company just as if you own part of a boat or airplane. If there is too much differential the other way -- the market is overvaluing the stock, the company can issue more shares. While the company only receives one cash infusion from the sale of shares, the company and the stock remain connected.
All the stock mechanism does is allow partial ownership just like partial ownership of a house, boat, airplane or any other asset. It may be a little *silly* that someone owns 1/10,000,000 of a company, but those people aren't the reason the stock exists anyway. It exists under the assumption that corporations or major buyers will exchange large blocks to assume equity significant enough to direct policy. Everyone else is just along for the ride. Your stock increases in value because the business increases in value to someone who may which to buy all or a significant chunk of it.
I don't think I'm missing your point, but please try again. I want to see your point of view.
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#277739 - 18/03/2006 14:04
Re: Stock Market
[Re: wfaulk]
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carpal tunnel
Registered: 29/08/2000
Posts: 14496
Loc: Canada
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Quote:
There's no way to "redeem" your shares. You can't go to the company with your shares and tell them that you'd like to trade in your hundred shares for, say, one of their computers.
If one is truly investing, then there's no need to redeem the shares. The purpose of owning them is to collect the income they (the company) generate (dividends). That's how stocks have worked since their inception, except (mainly) in the USA over the past decade.
So a share that pays a $1 dividend each year, is worth about $33 max, given that there exist safer ways to earn a similar 3% return.
Cheers
Edited by mlord (18/03/2006 14:05)
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#277740 - 18/03/2006 16:01
Re: Stock Market
[Re: TigerJimmy]
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carpal tunnel
Registered: 25/12/2000
Posts: 16706
Loc: Raleigh, NC US
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You may be not missing my point, but I believe that you're deluding yourself, and you've yet to prove me wrong.
I was going to write up a big thing here, but it comes down to this: if I never sell the stock to another investor, what value does it have?
_________________________
Bitt Faulk
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#277741 - 18/03/2006 16:02
Re: Stock Market
[Re: mlord]
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carpal tunnel
Registered: 25/12/2000
Posts: 16706
Loc: Raleigh, NC US
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Quote:
That's how stocks have worked since their inception, except (mainly) in the USA over the past decade.
Are you saying stocks in other markets tend to actually pay dividends?
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Bitt Faulk
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#277742 - 18/03/2006 17:12
Re: Stock Market
[Re: wfaulk]
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carpal tunnel
Registered: 14/01/2002
Posts: 2858
Loc: Atlanta, GA
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Quote:
I always say that the stock market is gambling, pure and simple.
I guess it depends on your definition of gambeling. It certainly fits the notion of "to bet on a certain outcome", but then most things do. Heck, getting a college education could be considered betting (paying tuition) on a certain outcome (making more with an education than without). While that's a pretty good bet, I'm sure it's not 100%.
I guess you could say the degree of luck might influence whether something is gambeling. Obviously there is less luck in being succesful with a college degree than playing the stock market- and less luck invovled in the stock market than playing roulette.
The way I think about it (which I realize is making up my own definition of the word) is that gambeling is wadgering against the odds (like what most people in casinos do, including Black Jack players who don't count cards).
Of course, under this definition the stock market wouldn't be gambeling, becuse I think it is possible to make choices that give you a reasonable probability of coming out ahead- but the same is true for poker, making my definition questionable.
The lottery, of course, is pure gambeling under just about any definition.
Regarding the value of stock ownership, I guess that in the stock market there is always the possability of someone trying to buy you out for a controlling share, which is tangable value for your stock. I don't know how often that happens, though.
_________________________
-Jeff
Rome did not create a great empire by having meetings; they did it by killing all those who opposed them.
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#277743 - 18/03/2006 17:29
Re: Stock Market
[Re: wfaulk]
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veteran
Registered: 01/10/2001
Posts: 1307
Loc: Amsterdam, The Netherlands
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Quote:
Are you saying stocks in other markets tend to actually pay dividends?
Traditionally, yes. But that has changed quite a bit in most markets.
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#277744 - 18/03/2006 17:41
Re: Stock Market
[Re: JeffS]
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Carpal Tunnel
Registered: 08/02/2002
Posts: 3411
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Quote:
The lottery, of course, is pure gambeling under just about any definition.
I recently discovered that a colleague of mine was part of a successful lottery syndicate. They calculated that by playing upwards of 20000 tickets on rollover weeks that had a better than 95% chance of making a profit, and something like a 90% chance of making a 40%+ ROI. And of the 5% of times that they didn't profit, there losses we usually less than 40%. He put in $1k several times and made about $3.5k in total profit.
This all came to an end when an MIT syndicate noticed he same thing and started putting ludicrous amounts of money into it, thus changing the math.
_________________________
Mk2a 60GB Blue. Serial 030102962
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#277745 - 18/03/2006 17:47
Re: Stock Market
[Re: genixia]
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carpal tunnel
Registered: 14/01/2002
Posts: 2858
Loc: Atlanta, GA
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ha- gotta love math and odds. I had no idea you could beat a lottery. I guess that's why I should never say "of course"
_________________________
-Jeff
Rome did not create a great empire by having meetings; they did it by killing all those who opposed them.
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#277746 - 18/03/2006 17:49
Re: Stock Market
[Re: genixia]
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journeyman
Registered: 29/01/2001
Posts: 89
Loc: New Jersey, United States
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Quote:
Quote:
The lottery, of course, is pure gambeling under just about any definition.
I recently discovered that a colleague of mine was part of a successful lottery syndicate. They calculated that by playing upwards of 20000 tickets on rollover weeks that had a better than 95% chance of making a profit, and something like a 90% chance of making a 40%+ ROI. And of the 5% of times that they didn't profit, there losses we usually less than 40%. He put in $1k several times and made about $3.5k in total profit.
This all came to an end when an MIT syndicate noticed he same thing and started putting ludicrous amounts of money into it, thus changing the math.
What lottery game were they playing and in what markets?
_________________________
The only difference between science fiction and reality is about 60 years.
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#277747 - 18/03/2006 18:07
Re: Stock Market
[Re: wfaulk]
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Anonymous
Unregistered
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There's no way to "redeem" your shares. You can't go to the company with your shares and tell them that you'd like to trade in your hundred shares for, say, one of their computers. They'd tell you to go jump in a lake.
It's effectively just a shiny bauble you can line your nest with. Fortunately, a good deal many other people seem to like those shiny baubles just as much as you do.
Quote:
if I never sell the stock to another investor, what value does it have?
Same thing with US currency. It's not backed by gold. Of course you could just say gold is a shiny bauble.
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#277748 - 18/03/2006 18:13
Re: Stock Market
[Re: wfaulk]
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Anonymous
Unregistered
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Quote:
And none of this is intended to imply that it's impossible to make money at it. It's obviously possible, as it's also possible to make money playing poker, which the stock market reminds me of (with people competing against each other and the "house", in this case brokers, taking a cut of each transaction).
The only problem with that analogy is in Poker the players are just transferring wealth, with winners and losers. On the other hand, businesses you invest in are creating wealth (eg., building things, servicing people, advancing technology.) In the stock market it's possible for all the players to be winners.
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#277749 - 18/03/2006 19:00
Re: Stock Market
[Re: ]
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carpal tunnel
Registered: 25/12/2000
Posts: 16706
Loc: Raleigh, NC US
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Yeah, that occurred to me while I was writing all of this up. But when you look at it in depth, what money ultimately represents is the work of other people. That does not seem to hold true for stocks.
_________________________
Bitt Faulk
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#277750 - 18/03/2006 19:08
Re: Stock Market
[Re: ]
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carpal tunnel
Registered: 25/12/2000
Posts: 16706
Loc: Raleigh, NC US
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Quote:
in Poker the players are just transferring wealth, with winners and losers. On the other hand, businesses you invest in are creating wealth
My point is that the businesses might, in fact, be creating something (though even when you look at that it becomes questionable), but that, as a stock owner, you don't actually get any of the company's profits, unless they pay dividends, which they largely don't do.
_________________________
Bitt Faulk
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#277751 - 18/03/2006 22:36
Re: Stock Market
[Re: wfaulk]
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old hand
Registered: 15/02/2002
Posts: 1049
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Quote:
it comes down to this: if I never sell the stock to another investor, what value does it have?
If you never sell your home, what value does it have?
The fact that you *could* sell it means it has value.
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#277752 - 18/03/2006 23:05
Re: Stock Market
[Re: TigerJimmy]
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journeyman
Registered: 29/01/2001
Posts: 89
Loc: New Jersey, United States
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Quote:
Quote:
it comes down to this: if I never sell the stock to another investor, what value does it have?
If you never sell your home, what value does it have?
The fact that you *could* sell it means it has value.
some things have more than one type of value.
In the case of a home yes it has a monetary value because it can be sold, but it also has value to the owner because it can provide shelter while it is owned.
_________________________
The only difference between science fiction and reality is about 60 years.
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#277753 - 19/03/2006 00:31
Re: Stock Market
[Re: n2toh]
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old hand
Registered: 15/02/2002
Posts: 1049
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Of course. But the monetary value of a house you never intend to sell is *identical* to the monetary value of a stock you never intend to sell.
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#277754 - 19/03/2006 01:06
Re: Stock Market
[Re: TigerJimmy]
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journeyman
Registered: 29/01/2001
Posts: 89
Loc: New Jersey, United States
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If you never sell the stock they what else does it do for you?
_________________________
The only difference between science fiction and reality is about 60 years.
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#277755 - 19/03/2006 01:32
Re: Stock Market
[Re: n2toh]
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old hand
Registered: 15/02/2002
Posts: 1049
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Well, that's kind of my point. To say you have a stock that you have no intention of selling is to miss the point of stocks entirely. The whole reason you bought it was to participate in the exchange, precisely because it has no intrisic "utility" value. It's only value is as an instrument.
I'm really missing the whole point of this conversation. $100 bills have no intrinsic value, either. Their only value is that you can exchange them in a marketplace -- just like stocks. We use things like dollar bills and stock certificates because barter becomes impractical. Both of these instruments are surrogates for value. They have value themselves only because of a social agreement to exchange them for things that do have intrinsic value.
The value of a $100 bill you have no intention of spending is also zero. But making that statement is silly because it ignores that these things only have value within the context of a marketplace. All Bitt is saying is that if he refuses to participate in the marketplace, then the instruments the marketplace uses as *symbols* of value are worthless. Well, of course. But so what?
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#277756 - 19/03/2006 02:29
Re: Stock Market
[Re: wfaulk]
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carpal tunnel
Registered: 18/01/2000
Posts: 5683
Loc: London, UK
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Quote:
if I never sell the stock to another investor, what value does it have?
As others have said: it generates dividends. Maybe not a lot. Microsoft (for example), until recently, didn't pay dividends, because the value of the stock was increasing rapidly.
Other stocks are worth hanging on to, because they pay a regular (but not huge) dividend.
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-- roger
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#277757 - 19/03/2006 04:23
Re: Stock Market
[Re: wfaulk]
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carpal tunnel
Registered: 27/06/1999
Posts: 7058
Loc: Pittsburgh, PA
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I'm no economist, and I don't play one on TV. But I see it like this:
1. You start with goods or services that have value to someone.
2. Then, you use money as a way to store the value of those goods or services, exchange those goods and services without the need to barter, and measure the comparitive values of those goods and services.
3. Once money exists, you add "meta money" vehicles like credit, debt, stocks, bonds, etc.
4. This pattern can continue for any number of "meta" levels of indirection and abstraction. (e.g. mutual funds.)
All of these extra creations on top of money are just ways of abstracting "value" and participating in economic transactions without directly being involved as a primary participant. But no matter how many levels you add in between you and the good/service you're buying/selling, you still have something of value. Unless the whole system collapses, there will never be a time when you can't redeem that stock certificate for some amount of money.
Of course, stock markets, currencies, and entire economies can and do collapse, but if that happens, there's really no amount of salt, goats, or money that's going to help you out.
So, to the gambling question. Stock market investment is speculation on both ends of the transaction. The seller of the stock believes they are getting more money than the stock is going to be worth, and the buyer believes they're getting a stock that's going to be worth more than the money they now pay for it.
Likely, one of the parties is right, the other is wrong. Is that gambling? Possibly.. But I'd argue that any transaction that involves goods, services, money, or any of these "meta money" abstractions can also be considered gambling, because you never know who's getting the thing of higher value. Any transaction, from simple bartering to the most complex financial deals, ends up being about trying to walk away with more value than the person on the other side of the table. Isn't that a form of gambling?
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#277758 - 19/03/2006 09:03
Re: Stock Market
[Re: wfaulk]
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pooh-bah
Registered: 13/09/1999
Posts: 2401
Loc: Croatia
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Quote:
My point is that the businesses might, in fact, be creating something (though even when you look at that it becomes questionable), but that, as a stock owner, you don't actually get any of the company's profits, unless they pay dividends, which they largely don't do.
Well, whan buying stock you hope that at least one of these will happen:
- The company will pay dividends regularly (like in good old simple days)
- The company will one day pay large dividends (like Microsoft did recently)
- Somebody will want to acquire the company (because of some kind of its intrinsic value - market, manufacturing assets, IP...)
- There will be enough people believing one of above (thus willing to buy your stock for more than you paid for it)
Of course, the market is polluted by likes of "analysts" knowing zilch about the industry they are "following", big fat investors (e.g. banks) that at the same time "manage" other people's money (in funds) and directly invest in the same markets, "adjusting" their advice to small investors so to fit their interests etc. There is a lot of pure irrationality, of course, but the two are difficult to distinguish. For example, when an analysts yells "sell, sell, sell!" for Google or a few years ago Nokia because they performed only fantastically well, not unbelievably well (which the same analyst was promising), how do we know he is not trying to temporarily deflate the stock in order to make better profit from buying it himself ('himself' usually meaning his employer)? But that is besides the original point.
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#277759 - 19/03/2006 09:17
Re: Stock Market
[Re: n2toh]
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pooh-bah
Registered: 13/09/1999
Posts: 2401
Loc: Croatia
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Quote:
What lottery game were they playing and in what markets?
Our own local Croatian lottery has rules that make expected return on certain weeks larger than 1 (I believe others are similar). They pay back 50%, but if nobody has, say, 7 numbers in 7/49 game in a particular week, money allocated for that goes in next week's jackpot. As the result, there are weeks when jackpot alone is more than twice as large as the money people payed for tickets. So, if one plays only in those weeks, expected return is more than 1. The more money one puts, shorter the time interval in which actual returns are likely to average to more that 1. And, of course, it is impossible to know how many people will, led by the same reasoning, buy more tickets on high jackpot weeks, possible diluting the odds below 1.
Hm, I was not terribly clear, was I? 
_________________________
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Q#5196
MkII #080000376, 18GB green
MkIIa #040103247, 60GB blue
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#277760 - 19/03/2006 16:14
Re: Stock Market
[Re: bonzi]
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journeyman
Registered: 29/01/2001
Posts: 89
Loc: New Jersey, United States
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Quote:
Quote:
What lottery game were they playing and in what markets?
Our own local Croatian lottery has rules that make expected return on certain weeks larger than 1 (I believe others are similar). They pay back 50%, but if nobody has, say, 7 numbers in 7/49 game in a particular week, money allocated for that goes in next week's jackpot. As the result, there are weeks when jackpot alone is more than twice as large as the money people payed for tickets. So, if one plays only in those weeks, expected return is more than 1. The more money one puts, shorter the time interval in which actual returns are likely to average to more that 1. And, of course, it is impossible to know how many people will, led by the same reasoning, buy more tickets on high jackpot weeks, possible diluting the odds below 1.
Hm, I was not terribly clear, was I?
Ok then how would such a ploy work on this game where rollovers happen all the time?
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#277761 - 19/03/2006 16:30
Re: Stock Market
[Re: n2toh]
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pooh-bah
Registered: 19/09/2002
Posts: 2494
Loc: East Coast, USA
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HAHA, New Jersey, where the real "getting nothing for something" gamble is paying your taxes... to corrupt politicians' pensions. Oh, I should watch what I say. Their pending bill ( real link broken) to force Internet message board posters to be fully identifiable with name and address ( second paragraph says it all) may help The Man track me down for such slander. You know, in some states, lottery funds go to schooling for under privileged 3 and 4 year old children. Let's tell those MIT guys to back off raking the lottery systems.... which rake so many people.
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