Category Archives: Advanced

Powerball Tickets: A good or bad investment at a $1.4 billion jackpot?

States with Lotto

We’re seeing alot of people getting excited about the now $1.4 Billion jackpot – and have even seen some folks who’ve never played the lottery before buy tickets for the first time!

However – even with the huge jackpot – is it a worthwhile buy?

Business Insider took a look at the probabilities of winning with a $450mm jackpot earlier this month and concluded a resounding “NO”- but with the jackpot at TRIPLE the previous analysis – have things changed?  Let’s take a look:

Powerball Probabilities - For 1.4 Billion Jackpot

Powerball Probabilities – For 1.4B Jackpot

Probabilities from:
http://www.powerball.com/powerball/pb_prizes.asp


As one can see:

  1. In theory, the expected value of the ticket is high enough such that it’s worth buying if one were to win and collect as an Annuity. (Table 1)
  2. As shown in the second table, if one were to take the jackpot as a lump sum, the expected value is less than the $2 ticket cost, making this a non-starter.
  3. However – with the added effect of taxes (say, a nominal 50%) – our expected value falls drastically – regardless if we choose lump sum (or not) – as shown in tables 3 and 4.

TL;DR / Bottom line: even at $1.4 Billion, the expected value makes this a terrible “investment.”  It’s certainly fun entertainment, but we recommend saving your money and keeping the long course for long term financial happiness 🙂

Am I going to prosper with Prosper.com? (Aug ’15 Update)

It’s been a while since my last post, but checking in with my Prosper account (now having gone through 172 notes), some very interesting observations I’ve made when focusing on notes where borrowers have NEVER had previous delinquencies.

(Would’ve loved to make an infographic for this, if not due to lack of time!)

Out of the collection of 172 notes, so far:

=== The stats ===

Seasoned Only return: 7.58%
All Notes: 7.46%

Defaults / Charge offs:
(1) Default, grade A
(6) Charge-offs
– (1) Grade AA
– (3) Grade A
– (2) Grade B

Lates:
(1) <15 days late, grade A
(1) 15-30 days late, grade AA

Paid off / On Time / As per Terms:
(14) Grade AA
(14) Grade A
(6) Grade B
(3) Grade C
(1) Grade D

Current:
(30) Grade AA
(47) Grade A
(31) Grade B
(9) Grade C
(7) Grade D

=== Observations ===

1. Proportionally speaking, since most of the portfolio is Grade A, it make sense that there are more Grade A charge-offs and lates.

2. What’s interesting is that the % of lates / defaults for Grade B/C/D isn’t higher (at least not yet, as most “C” and “D” notes are about 9.7 months old.)

3. If trends hold, my hypothesis of selecting only notes with borrowers that have no previous delinquencies may be the filter needed to be used to target higher returns by focusing on grade B/C/D notes – while minimizing risk.


This topic will be revisited in another 3 months, around November, when more of our C & D graded notes would be about a year old!

Financial Theory with John Geanakoplos [Yale Courses]

Another great video series from YaleCourses on Youtube!

“How does our complex financial system fit in with the global economy?  This course attempts to explain the role and the importance of this fit.

Rather than separating off the financial world from the rest of the economy, financial equilibrium is studied as an extension of economic equilibrium. The course also gives a picture of the kind of thinking and analysis done by hedge funds.”

Financial Markets (2011) with Robert Shiller [Yale Courses]

An awesome video course into advanced topics!

“An overview of the ideas, methods, and institutions that permit human society to manage risks and foster enterprise. Description of practices today and analysis of prospects for the future. Introduction to risk management and behavioral finance principles to understand the functioning of securities, insurance, and banking industries.”