Video blog: why sensible investing is not a lottery

Hello there. Every week, about half the UK population buys a lottery ticket. By and large, it's a bit of fun. Most would agree that splurging on Lotto or Euro Millions tickets is NOT a good way to invest for the long term. But recent research carried out by Professor Richard Taffler at the University of Warwick that many of us do buy shares for the very same reason that we buy lottery tickets. "Many retail investors actually seem to like stocks which are offering very poor ad negative returns on the basis that if they strike lucky they will actually hit the proverbial jackpot. These stocks tend to be low priced just like lottery tickets. They also tend to have skewed returns i.e. very low probability of doing well and very high probability of doing badly and also they are highly volatile." What's also interesting is that people in some countries are more likely to buy so-called lottery stocks than others. A recent study by the University of Hong Kong identified one of those as Taiwan, where 70% of investors are retail investors, and where - with the exception of the public lottery - all forms of gambling are banned. Researchers showed that days when a large lottery jackpot was up for grabs saw a considerable reduction in the trading of lottery stocks. Professor Taffler has noticed several other trends - in addition to geographical ones. "We can actually show that the types of investors that invest in lottery stocks and there are quite a large number of such stocks, tend to be poorer, tend to be from certain areas where there is a high take up of lottery players, they come from particular socio-economic backgrounds, they tend to be low educated and they tend to be more single than family driven. I think the conclusion is that investment is too serious to be left to individuals." The problem is, of course, that the more people who buy lottery stocks to gamble rather than invest, the higher prices are inflated. That in turn leads to low returns. The moral of the tale? "Follow what the professionals do, do not think that you are cleverer or know more. Just recognise the odds are stacked against you." Thanks for watching. See you next time. Unless, of course, I've won the jackpot.

Comments

1. OH FOLLOW the professional....buy big name brnd  and HIGH PRICED stocks which will take YEARS to even double your money vs buy low priced cheap stocks which it doesn't take too much for it to double in share price...............yeah .............right
2. This is a great channel