How to Select a Lottery Stock
Select a Lottery Stock
If you are wondering how to select a lottery stock, it is important to know how to pick stocks that will have the best chances of winning the lottery. This podcast is hosted by Tracey Ryniec, a stock strategist with Zacks. She discusses the latest investing trends, including lottery stocks. In recent years, some lottery stocks have turned investors into millionaires, including Tesla. Listen to the podcast to find out how to pick lottery stocks that will outperform the market.
Lottery stocks are low-priced stocks with high volatility and idiosyncratic skewness. The odds of picking a lottery stock are incredibly low. If you have only one percent of your portfolio in these stocks, you can still bet on a winning lottery bet. But remember that lottery stocks usually have low payouts. It is best to use only 0.1 percent of your portfolio to make such a wager.
The academic literature consists of 16 measures of lottery preference, including expected skewness, maximum daily return, and return asymmetry. In a study by Lei Jiang and colleagues, the researchers aggregated these measures into a single factor and examined its performance in explaining anomalies in the Fama-French five-factor model. They also included market beta, size, and profitability as factors in their model.
How to Select a Lottery Stock
While lottery stocks do have the potential for outsized returns, they often deliver poor performance. Therefore, naive retail investors may want to stay away from these stocks. The distribution of lottery-like investments is lottery-like. It has positive skewness and excess kurtosis, which means that they offer a high potential for future growth. However, if the business invests in a lottery, the stock price can go to zero.
The lottery effect is very real. This is why lottery ticket buyers risk a small amount of money in exchange for a chance at making a fortune. For example, Peter Thiel, an early investor in Facebook, earned over a billion dollars. His firm Lightspeed Investments invested $8 million in Snap, which grew to $2 billion, a 250-fold return on his initial investment. Similarly, Chris Sacca turned a $300,000 investment into a $1 billion profit with his Uber stake.
After winning the lottery, it is important to seek the advice of a certified public accountant, tax attorney, and financial advisor to determine the best way to invest your winnings. You may choose to take your winnings in lump sum or annuitized payments over several decades. Regardless of the decision, the goal is to maximize your payout by ensuring that you take the right decisions for your situation. There is a good and bad side to both.