By: John Silva – August, 2022
If you don’t understand the odds, you should probably skip this story, because you probably wouldn’t get it anyhow. Don’t worry, I won’t tell anyone you skipped The Kid. Least ways, not anyone that you know. In fact, you might find it boring, and it could put you to sleep after just a page or two.
Although it does have its moments, and I’d rate it exceptional for people who desire to retire wealthy. But, for those that don’t want to retire wealthy, it would seem bland, sterile, uninteresting, ponderous and without purpose.
The kid was “fishing” at the big lagoon by the historic Cafe Brauer in Chicago’s Lincoln Park. I guess he was probably ten or twelve years old. He didn’t know it, but there hadn’t been fish in that lagoon for over fifty years. But, he was trying, and he was having fun… I think. So, I thought I’d have a bit of fun with him and I said “I bet you can’t catch a whale in this lagoon.” I’m not joking. This is what the kid fires back at me. What kind of odds are you offering? He was dead serious.
I thought, smart kid… maybe?… or not? I decided to see how far he would go. I told him it’s three o’clock. If you haven’t caught a whale by six o’clock you owe me a dollar.” And, before I could take a breath, he said. And, if I catch a whale before six o’clock what do I get?
I tell the kid, I’ll give you a million dollars. There was a discernible pause. You could see the kid doing some kind of math in his head. And, a second later he says “DEAL!” Then he turns to me and says, mister a million to one… those are crazy good odds.
If this essay was about a ten or twelve year old kid it could probably be developed into a cute story. But, it isn’t. This is a story about life, and it is for adults who have to work forty plus hours a week to pay for their mortgage, car payments, utility bills, food, college tuition for the kids, and funding their Roth IRAs for that all important retirement dream.
This is an essay for adults that are normally sane at least most of the time. However, when it comes to playing the Lotto their brain turns to unrealistic visions of grandeur. The Lotto is a drug. It’s the new heroin! What kind of stupid causes people to buy lotto tickets thinking that somehow they will beat the odds and win the Mega Millions jackpot? Not just once mind you, but over again and again. They might just as well light their cigars with that money because they are never, ever, ever gonna see it again. Duh! Sure, someone will win, but it won’t be them. I mean come on, what are the odds?
The rather modest “prize” for a recent lotto drawing was approximately $300,000,000 (to date the largest prize was a Powerball drawing on November 7, 2022 of one point two billion dollars). If the “prize” is three hundred million dollars, and your ticket costs one dollar the odds of you winning the “prize” is 300,000,000 to one. You think to yourself, for only a dollar that $300,000,000 could be mine. So, you buy a ticket or two or three thinking at least I got a shot. Right? Unfortunately, it’s not about the prize… that’s just bait! It’s all about the odds!
Think about just how big the number three hundred million really is. For example, is it larger or smaller than, say, the population of Chicago with all of its high rise apartments on the Gold Coast, miles and miles of rat infested slums, middle class neighborhoods, and the like? Chicago has a population of about 3,000,000. So, three hundred million is a hundred times larger. Imagine a mega city one hundred times larger than the City of Chicago where every person buys a lotto ticket. That’s what 300,000,000 to one odds looks like. In order for you to win, your ticket would have to be chosen instead of one of the other 300,000,000 tickets.
But, you say the pot is the highest it’s ever been, and that people are standing in line for hours to buy hundreds of dollars in lotto tickets. You ask, isn’t this the best time to buy a few hundred Lotto tickets to increase your odds of winning the mega lotto. Really? Remember it’s never about the prize… It’s always about the odds. So, when the prize money goes up your chances of winning go down because you are hoping to win against even more people.
Still don’t get it? Think about this. You would have a much better chance of getting hit by lightning. If you want to win that prize the odds are only a million to one!
But, you say, it’s only a few bucks, and I can afford it. Really? If you buy five tickets on Monday morning on your way to work at the coffee shop, eight more tickets when you shop for groceries after work on Wednesday night, and seven more tickets when you buy gas on Saturday, that’s twenty tickets which equals twenty bucks a week for say, fifty weeks equals $1,000 a year. That money could be in your pocket, but now it is gone forever.
If you can’t see where this is going… it would be nice if you paid attention… Duh! In forty years, instead of having $40,000 dollars you will still be working at a job you hate with no hope of ever retiring, and eating beans out of a can, begging for food and sleeping outdoors in a cardboard box when the outside temperature at night is going to be below zero . Duh! There is never a good time to buy a lotto ticket.
On the other hand, you could put twenty bucks into a sock each week and keep it under your pillow. At the end of the year you would have a thousand bucks and a smelly sock. Do this for forty years and you would have forty thousand dollars and forty smelly socks. Or, you could choose to be the proud owner of $40,000 of worthless lotto tickets. What part of “stupid” don’t you still understand?
If you don’t like the idea of “socking” your money away and keeping it under your mattress, opening a high yield savings account or buying a Certificate of Deposit that pays you say 5% compound interest is an awesome idea. Be sure the funds are insured, guaranteed, and the interest is compounded daily. It’s certain, safe, smart… and easy, peasy.
Because this interest is being compounded daily i.e. you are getting interest on your interest every day of the year. Does it make a difference? Oh yea!!! Over forty years, your money earns an additional $85,000 in interest. That’s right… $85,000. That’s twice the forty thousand you put in for a total of $125,000. Do you still think you can afford to buy lotto tickets?
A word about compound interest. It can be wicked good or wicked bad. If you are receiving five percent with the interest compounded daily on a CD, that’s good. If the bank is charging you compound interest on a 30 year mortgage loan that’s not so good because you will end up paying back two or three times the amount you borrowed. You can use compound interest to your advantage or let it eat you alive. Get it?
Let me spell it out, suppose you want to buy your dream house which in this market is more likely to be a fixer upper that needs a lot of work. You go to the bank and hope you qualify for a loan to buy the house. “If” the bank chooses to lend you the money because they deem you a good credit risk, they will charge you a compound interest rate. So, if you borrow $250,000 dollars for thirty years you will pay the bank back the $250,000 dollars you are borrowing plus two or three times that amount depending on the interest rate the bank is charging and the term of the loan. If you can’t do the math, that’s seven hundred and fifty thousand dollars to a cool million dollars.
Even so, the interest rate would be considered reasonable because other banks are charging even higher rates and you got a deal. Comparison shopping can literally save you thousands of dollars. Even a quarter of a percent can make a big difference. Check it out on one of the internet mortgage sites for free… or don’t and remain ignorant.
How can they do this? Because if you don’t pay back the loan they will repo your house. Some people consider a bank financed loan a necessary part of investing in real estate.
On the other hand, credit cards have no collateral i.e. a house that the credit company can go after if you don’t pay back the loan. Believe me, they don’t want back the junk you were probably tricked into spending your hard earned money on. So, they charge higher rates. In the past when the rates were more reasonable and this for the most part seemed somewhat fair. However, the rates being charged currently are through the roof! Some cards charge more than 30%. If you don’t know what that does to your take home pay, you really owe it to yourself to find out… or you can remain part of the masses that credit card companies feed on.
If you don’t remember anything else, NEVER, NEVER, NEVER BUY ANYTHING ON CREDIT THAT YOU CAN’T AFFORD TO PAY FOR AT THE END OF THE MONTH WHEN THE BILL COMES DUE. Now you are using their money for free. Now that’s smart!
However, if you don’t want to pay in full every month you might just as well join the kid at the Lincoln Park Lagoon and put your pole next to his and try and catch a whale. SIMPLY PUT, YOU ARE DOOMED, AND YOUR FULL TIME JOB IS TO NOW MAKE OTHER PEOPLE RICH.
In closing, some time ago, I was taking a class on investing in and buying apartment buildings. However, the more I thought about the risks and the work required, I decided instead to just lay down and take a nap, and sure enough all desire to become a real estate tycoon passed. But, it wasn’t a loss because I did learn a lot about commercial real estate, investing, and life.
The instructor made a point of telling us there are two types of investors. Rabbits and alligators. He said rabbits are foolish because they get eaten. His advice was to be an alligator. Educate yourself about investing every way you can… never stop learning… otherwise you is da wrabbit!