Almost everything I’ve put bids on (very near the market) have creeped away from the bid. It is also not like I put a ten million dollar limit order in the market either – I break things away into very small sized chunks and scale in as market volatility takes pricing lower (or vice-versa in the event of a sale).
My lead hunch at this point is to simply buy into long-dated US treasury bonds (e.g. NYSE: TLT) and just sit and wait and be patient for other opportunities as they may arise. If long-term 30-year yields go to about 3.2-3.3%, I just may pull the trigger. But if anything is like how things have been throughout the year, it is going to be a very boring year. Maybe I am slightly resentful that had I did the TLT route in early 2014, I’d be sitting on a rough 20% gain at present.
I will also point out that the Lotto MAX is at $50 million plus $33 million bonus draws which means that you have a better than 1-in-a-million probability with a $5 fee to win a million. Although the expected value of the lottery of course is negative, it almost seems like the only real chance of getting a big payout is through this medium compared to what I am seeing out in the markets at present.
Sad times indeed!
Hey, I might be missing something, but why do long-term treasury bonds make sense?
If you buy and interest rates start rising, you’ll have to sell at loss if you want to deploy the case somewhere else.
Interest rates rising could be a catalyst of some degree for lower equity prices, so why wait for better opportunities there instead of cash?
Only makes sense if you believe the market is done rising. Market history would also suggest there is a huge rush to US treasuries whenever there is some turbulent event going on in the marketplace so it would be an alpha-positive decision if it did occur.
That said I agree with you cash is much safer. But it is painful to see it there at zero yield. And yes, those that did invest at the beginning of February are probably not too thrilled to see 10-11% of their capital evaporate.
Just looking at the history of yield rises in the QE era would suggest that 3.3-ish is probably how high this will go before yields start to compress again due to basically everything Lacy Hunt says.
Didn’t you have a post on lottery odds in a previous blog (Double Blind?). I can’t seem to find it. It would put the Lotto MAX in context.
Thanks for the clarification. For me it would feel too much like speculation with marginal risk-reward ratio, but then again I probably don’t have as good insight related to treasury rates.
The only reason why I like cash here so much is that I’m too scared to do something stupid with it. I’m still investing in some decent opportunities while holding the old good ones, but nothing major.
I hope you’ll do well!
Nicolas: Glad to see a long-time reader.
The chances of getting 7/7 on the Lotto MAX is 1:28.6 million.
I am guessing there will be around 15 million tickets sold.
Inserting some statistical wizardry, that will translate into an expected value of about $1.36 for the $50 million prize and the same for the 50 additional million dollar prizes.
The other prizes (3, 3+, 4, 5, 6, 6+) will contribute roughly another $1.41 to the pool.
So EV on 15 million sold is roughly $4.13 on a $5 ticket. Not too bad in the grand scheme of things.
Again, this depends on the number of tickets sold – a higher count (e.g. 20 million) results in EV going to $1.26 for the $50 million prize due to prize splitting.
So basically you want to be the only person playing the lottery.