Wise Money: If You Win the Lottery, Cash the Ticket

Quote to Ponder

"Good mental health is: a gym membership, a meaningful community, a loving family, a healthy diet, less screen time, work that makes you grow as a person, investments that give you more freedom, conversations that give you perspective, and time to read and write, alone."

- Orange Book

Recommended Links

• The Constitution or RMDs? - The FI Tax Guy
• For Retirees in Their 60's, the Move That Adds Years to a Nest Egg - Wall Street Journal
• The Best Thing About Retirement - Wall Street Journal
• An Evidence-Based Look at the Struggles of Value Investing - Larry Swedroe
• If You Believe in America, You Should Believe in Your Portfolio - Meredith Wealth
• Too Much Tesla - Bloomberg

Insight

My friend's parents were obviously wealthy. As a middle schooler, I asked them how they made their money. They replied, "We won the lottery...twice."

At the time, I didn't realize they were speaking figuratively. They didn't win the actual lottery, but they did get lucky with a few investments.A Canadian capenter also recently won the lottery. He turned $80,000 CAD into $400 million CAD in two year, only to lose every penny in the following year. How did that happen?

He bought and rode Tesla stock options and it's a powerful reminder of the risks associated with overexposure and the pitfalls of unchecked optimism.

While Tesla’s meteoric rise created extraordinary wealth, too much concentration in a volatile asset can destroy that new found wealth as quickly as it was gained. The fundamental mistake was an excessive concentration in a single, volatile asset.

This man was a carpenter who did not have much in the way of investment experience. He won the lottery, but failed to cash the ticket.

Fear of missing out often stops investors from locking in profits, even when prudence demands it. Most people would have cashed their lottery ticket Tesla options when their money was doubled. Just think about how many points along the way this man failed to cash his lottery ticket -- at $1M, $5M, $10M, $50M, $100M!! $200M!!, $300M!! It's pure insanity that he held on that long. He could have lucked his way into enormous wealth, yet he failed to take the chips off the table.

But the kind of investor that holds on that long, is also the kind of investor that holds on too long.

Without a plan to systematically realize gains or limit losses, the carpenter was left vulnerable to market swings that ultimately wiped out his brief fortune.

Success during a bull market can make investors believe they are invincible, causing them to disregard risks of loss. This man was certainly feeling no doubt.

Ultimately, this cautionary tale underscores the need for discipline and emotional regulation in investing. Diversification, clear financial goals, structured exit strategies, and a willingness to seek advice from professionals are all tools that can prevent similar outcomes.

The rise and fall of this Tesla investor serves as a stark reminder: when you strike it rich, cash the ticket. Success in investing isn’t just about making money—it’s about keeping it.