Lottery Stocks: How the World’s Richest, Smartest People Bet Small and Win Big

The lottery isn't just a tax on the poor, there's validity behind the hype

It’s estimated that American spend more than $70 billion playing the lottery each year.

Lottery Stocks: How the World’s Richest, Smartest People Bet Small and Win Big
Source: Shutterstock

That’s more than Americans spend on movies, concerts and video games combined.

To many people, that $70-plus billion is spent foolishly. The lottery’s odds are terrible. You’re more likely to get struck by lightning than win a “power ball” jackpot.

So, when many educated people think of the typical lottery player, they imagine a late-night gas station transaction that’s probably accompanied along with a pack of smokes.

“Save for retirement? Forget that. I’m ah gunnah hit the lotto!”

Whether you’re rich or poor, you can probably agree that banking on the lottery to pay the bills in old age is a bad idea.

But you’d be wrong to dismiss the basic thinking behind the purchase of a lottery ticket: Risk a tiny bit of money … for the shot of making a fortune.

This concept — risk a tiny bit for the shot of making a fortune — is the basis of an extremely powerful kind of investing called “venture capital.”

This concept — risk a tiny bit for the shot of making a fortune — is how famed investor Peter Thiel made over a billion dollars as an early investor in Facebook.

It’s how investment firm Lightspeed’s $8 million investment into social media business Snap grew to be worth $2 billion (a 250-fold return).

It’s how investor Chris Sacca turned a $300,000 investment into more than $1 billion with an early stake in Uber.

Just as impressive as the amounts of wealth generated by venture capital investments is the time the wealth is generated in.

As you read this, venture capital wins are allowing investors like Peter Thiel and Chris Sacca to amass outrageous wealth in very short time frames. The kind of wealth it took 30 years to generate in the past is being built in just 3 years.

Risk a tiny bit for the shot of making a fortune.

At its core, that is how venture capital investing works… just like the lottery.

All those ignorant chain smoking rednecks are onto something!

Below, I’ll provide you with an overview of venture capital investing… why it’s similar to the lottery… and how you can buy “lottery ticket” stocks in your own brokerage account.

It Only Takes One: How to Make Millions With the Lottery-Like Venture Capital Approach

What would you do with an extra 3 million dollars in cash?

Retire tomorrow? Buy a beach house? Buy a Lamborghini?

Put it in the bank and never worry about money again?

Sure, it’s nice to daydream about having an extra 3 million dollars in the bank.

But I’m asking you this question because it’s a real life situation the backers of early-stage companies – venture capitalists – often find themselves in.

When it comes to extreme wealth creation, few endeavors can compare to being an owner of a small company that grows large. As I mentioned a moment ago, early investors in Snap made 250-times their money.

That type of gain turns every $10,000 invested into $2,500,000.

What are venture capitalists?

And how do they earn such massive returns?

Venture capitalists are the early backers of startup companies. They invest in small firms way before they get a chance to go public.

Venture capitalists are the grand slam home run hitters of the investment world.

They don’t look to make 400% on their investments.

They look to make 4,000%… even 40,000%.

Make just one great venture-capital investment and you’ll probably never have to worry about money.

Venture capitalists have funded nearly every mega-hit technology company you know today: Google (now Alphabet), Facebook, Twitter, Uber, Airbnb, Pintrest, and the list goes on and on.

Before the public learned about these innovative businesses, venture capitalists were there, performing due diligence and making early investments.

By the time regular investors hear about a technology winner like Google, venture capitalists have made more than 2,000% on their original investments.

In return for the opportunity to make great returns, venture capitalists take great risks. Over 60% of all early stage companies fail within a decade.

However, the money earned from big wins like Facebook, Uber, and Snap can make up for hundreds of losing investments (and the odds of success are still a lot better than the lottery).

Risk a tiny bit for the shot of making a fortune.

That’s the venture capital mindset.

In fact, you could say that investing small amounts of money into many different early stage businesses is how the world’s richest, smartest people play the lottery.

The good news is, you don’t have to be a Silicon Valley billionaire to put the power of venture capital to work in your portfolio.

Every decade, dozens of small cap stocks that trade on the public markets shoot up more than 4,000%. You can buy these stocks in any regular brokerage account.

These stocks typically have market values of less than $2 billion.

This makes them “small caps” or “micro caps” in Wall Street parlance.

Just like the businesses that venture capitalists invest in, the failure rate of speculative small public stocks is higher than regular blue chip stocks. They often pay off HUGE or they go to zero.

But if you buy “lottery stocks” intelligently, you could do extremely well with the strategy.

Here’s how …

How to be Right Just 33% of the Time and Still Make Ton of Money

To the average investor, a 33% “win rate” on stock buys is an ugly thought.

Having a high “win rate” – like “8 out of 10 stock picks are winners” – is important to average investors.

However, the best venture capitalists don’t place any focus on “win rate.”

They know that with a smart strategy, you can be right just 33% of the time and make a fortune as an investor.

As I mentioned, brand new businesses are among the riskiest bet in the world. the market. They are more volatile and have higher failure rates than established “blue chip” businesses like Starbucks and Pepsi. That’s just the nature of the market… and that’s why the payoffs with venture capital-like “lottery stock” investments can be so massive.

Because early-stage companies can produce such gigantic capital gains – and because they have higher failure rates than established businesses – it’s important to understand a key investment principle used by the best venture capitalists.

As an investor in new companies, you’re not going to achieve success on 100% of your investments.

You probably won’t achieve success 75% of the time… or 66% of the time.

And that’s fine.

When you invest like a venture capitalist, you can be right just 33% of the time and still make MASSIVE returns.

Some simple math shows us how it works…

Let’s look at a hypothetical investment example.

On December 1st, you structure a “venture capital” or “lottery stock” portfolio of 12 promising businesses. You hold them for a year.

The returns of these 12 stocks are listed below:

Stock 1 -41%

In this example, four went up and eight went down.

You were right 33% of the time.

But because you hit just a few big winners, you made a great average return of 40% across the 12 positions.

When you make sure to win a lot when you’re right, and only lose a little when you are wrong, you can be right just 33% or 50% of the time…and still make huge profits with “lottery stock” investments.


Article printed from InvestorPlace Media, https://investorplace.com/2019/10/lottery-stocks-worlds-richest-smartest-bet-small-win-big/.

©2020 InvestorPlace Media, LLC