How To Win $1,000,000
Let me tell you about the time I won $1,000,000 in an afternoon.
November 6, 2016 started out like most other days. My son Oliver was 14 months old at the time and, as you know if you’ve been following along, was/is a terrible sleeper. That particular morning was unique, however, in that it was the day that the clocks fell back for Daylight Savings time. Those of you with small children know what a dreadful day that is… your kid that already wakes up too early, wakes up an hour earlier. Hence, at 4 AM little Oliver started to cry for his bottle.
As I sat there giving him the bottle, I started flipping through my phone, attempting to mindlessly pass the time as Oliver fell asleep with the bottle in his mouth. Shortly into that exercise, I passed by a fantasy football app called DraftKings that a friend had told me about some time before. I started looking at it and noticed that they had a contest running that Sunday called “The Millionaire Maker”. As the name would imply, the winner would receive $1 million for his troubles. The entry was $20 and all 227,000 entrants were tasked with assembling a team of players whose stats would be measured against one another during the course of the day’s games and then added up. High score wins.
Straightforward enough, I thought, as I read through some of the contest’s rules:
6 points for a touchdown
0.1 points for each rushing or receiving yard
$20 to enter
I knew nothing about DraftKings other than the fact that I was bored, it seemed like a decent way to pass the time, and $20 didn’t seem all that onerous for a day of fantasy football fun. I immediately began filling out my team. As I passed by players, I picked those that were familiar to me… Marcus Mariota at quarterback, Melvin Gordon at running back, and so on…
Fate’s first intervention: As I rounded out my team, I had one position left to fill, the flex spot. Flex is a position that allows for any position player other than a quarterback to be used. As I went to pull up my options, Oliver suddenly awoke and was none too pleased to be up again. He immediately started crying. I instantly picked the first player whose name popped up on the screen… Latavius Murray.
The rest of that day was about as normal as you could imagine. My older son Jonah had a baseball game. I caught up on a little bit of work. We took the boys out for a walk.
At 5:30pm, we ventured out to our favorite Chinese restaurant to have dinner. As we were walking out the door, I glanced at the DraftKings app on my phone and was shocked to see myself in 60th place out of 227,000 players! I was up $1,000. I immediately looked for the “cash out” button, convinced that I would be able to take my 50x return over the course of the past 12 hours and buy us all a nice dinner. Unfortunately, there was no such button. I would have to wait for the evening game between the Oakland Raiders and Denver Broncos to be able to collect my winnings. That game would feature only one player from my team, the running back for the Oakland Raiders… the aforementioned Latavius Murray.
We then went through another normal Sunday night dinner and I forgot about the game completely. As we were walking out of the restaurant, I noticed a small TV in the corner of the bar showing the game. As I walked by, Latavius Murray was scoring a touchdown.
30th place. $2,500.
Now this was getting real.
We loaded the kids into the car (which, by the way, takes like 20 minutes for some reason) but I had forgotten my jacket inside, I walked back in to grab it. As I walked back out through the bar, Latavius Murray was running in another touchdown after a quick interception from his defense.
2nd place. $150,000.
Now I was nervous.
We got home and the rest of the evening was a blur. The kids went to bed. We may have watched something on TV. I honestly don’t remember it that well, other than at around 8:30 when I turned the game on to see what was happening.
4:00 left in the game. Oakland had the ball. 3rd and 20 from their own 45 yard line. They had a 10 point lead.
Fate’s second intervention: For some reason, and if you understand football you will understand how crazy this is, Oakland decided to throw a Hail Mary pass into the end zone on that play. As the receiver jumped to grab the ball, the Denver defender immediately collided with him. The referee’s whistle blew…
“Pass interference, defense. Ball will be placed at the Denver 1 yard line.”
Now the Raiders would surely run the ball with Murray. All he had to do was get 1 yard further into the endzone and he would earn me an additional 6.1 points…
And $1 million.
Oakland’s quarterback snapped the ball on first down and… faked to Murray in favor of throwing a pass to his wide open tight end in the end zone.
No one around him.
Just grab the ball and spike it. Game over.
Fate’s third intervention: He dropped it.
Second down. Handoff to Latavius Murray. Touchdown.
The rest of this post should be spent with me telling you about the wonderful lessons I learned from winning $1 million in a day.
But here’s what I learned:
Nothing.
I learned nothing because the process that I went through to achieve that outcome required little to no thought and was based almost entirely on luck.
I learned nothing because the outcome itself didn’t make me any smarter or better for the next time.
One way to determine whether an activity requires skill is to ask whether you can lose at that activity on purpose. For example, baseball players can swing at all of the balls that come their way or wait for a strike. Pretty simple to understand that baseball involves skill since one could intentionally throw the outcome of the game.
Investing is a little more complicated when viewed through this lens, though, because if I asked you to construct a portfolio that would automatically underperform an index, there’s no guarantee that you could do it. This is the simplest explanation for the presence of luck in investing.
But investing certainly requires some (actually a lot of) skill, too. You have to understand correlations between various asset classes, how companies are capitalized, and how economic changes will impact the overall landscape. But even if I gave you the variables ahead of time, you would still need to predict the market’s reaction… and there is a lot of luck involved in that.
On March 23rd, The Federal Reserve dramatically stepped up its efforts to stave off another economic depression by promising to establish its first-ever special entity to buy corporate bonds and ETFs.
The bond market responded in kind by roaring back and basically collapsing spreads. Here’s what that looked like in chart form:
(Reminder that yields and prices move inverse to one another so lower is "better" on this chart!)
One week after the Fed’s announcement, I started poking around to see where opportunities might still lie in credit markets and came across high yield bonds, which at that point still looked relatively cheap. Cheap enough, I thought, that I could invest in them for clients and write a blog post about it (you can read that post here).
My investment thesis was threefold (and insanely simple):
BUT FOR NONE OF THE REASONS STATED ABOVE.
No, something happened that I couldn’t predict. No one could have predicted it…
Eight days after that post was written, the Fed added high yield bonds to their list of assets that could be purchased in their special entity.
For the first time in history, the largest buyer of assets in the world would be a buyer of high yield.
And higher high yield went…
So was I skillful or lucky? Well, like with most investments that work out (so far!), it was probably a little bit of both.
The analysis of the market to understand where we were from a yield and overall default/recovery expectations perspective undoubtedly required a certain amount of skill. Taking that one step further and implementing it in an overall portfolio design definitely took a greater degree of skill.
The timing of it couldn’t have been more lucky though. Like, it’s crazy how lucky I got. I follow most everything that Fed Chairman Powell utters at this point but even I was surprised to see them make the high yield announcement… it just doesn’t really match with their overall mandate.
I could have been lazy and waited a week to write the post.
I could have been early to the call when high yield started to look attractive earlier in March.
I could have chosen to let the market settle out a bit.
But none of those things happened and within one week of writing that post, high yield was 10% higher in price. So, yea… it was a good bit of both luck and skill. But, like Gary Player famously used to say, “The more I practice, the luckier I get.”
There are perhaps few more qualified to speak to the intersection of skill and luck in investing than Michael Mauboussin. As an investment strategist, director of research, and finance professor, Mauboussin has had a front seat to the interplay of the two throughout his investment career.
In his book The Success Equation, Mauboussin perfectly untangles the differences between skill and luck in a variety of different activities. The book is full of great insights but here are a few of my favorites:
The paradox of skill — In endeavors where skill is more important to the outcome, luck's role in determining the ultimate outcome actually increases. On the other hand, in activities where luck plays a larger role in the outcome, skill is still important but difficult to ascertain without a large enough data set.
The Matthew Effect — This is the idea that the most successful individuals tend to grow more successful while the poor grow poorer due to the endowment effect of early success, which may be due to good luck and not skill alone.
Favorites should simplify the game — If one has superior resources, he should try to concentrate his battles in fewer fields than if he was the underdog. Increased complexity increases the role of luck and gives the underdog an advantage in competition while diluting the advantage of the stronger player.
Like a professional poker player would do, great investors figure out ways to tilt the odds in their favor rather than rely solely on either luck or skill alone.
Winning $1,000,000 in an afternoon is pretty cool.
In my case, it also made people think I was an expert in something I knew practically nothing about. Since that fateful day I’ve been asked to use my expertise to write a column about fantasy football, appear on a podcast to give my predictions, and consult for a fantasy sports website.
I never accepted any of the offers.
While all of them were well meaning, I don’t think any of them accurately understood the role that luck played in the outcome. My thesis on why that’s hard to understand is that our brains have a difficult time processing incredibly low probability outcomes. There were 227,000 entries in the contest that day. Assuming it was a level playing field (which it probably wasn’t), I had a 0.00044% chance of winning. Said differently, I had a 99.99956% chance of losing. But I didn’t lose… and that’s why so many people think that I must have somehow tilted the odds in my favor.
Trust me on this one… I didn’t.
Like the poker player who catches a backdoor flush on the river or a portfolio manager who buys growth stocks regardless of their valuation (sorry... had to take a shot at growth!), I got lucky and, over the short haul, lucky beats good every time.
I’ve played in the Millionaire Maker contest a number of times since my big win. It’s still fun for me even though I’ve probably been a net loser since then. There was one week where I thought I was going to win again but, alas, some no name wide receiver for the Colts caught a long touchdown with no time remaining in a meaningless game to plummet me down the standings.
Sometimes you just can’t shake bad luck.
November 6, 2016 started out like most other days. My son Oliver was 14 months old at the time and, as you know if you’ve been following along, was/is a terrible sleeper. That particular morning was unique, however, in that it was the day that the clocks fell back for Daylight Savings time. Those of you with small children know what a dreadful day that is… your kid that already wakes up too early, wakes up an hour earlier. Hence, at 4 AM little Oliver started to cry for his bottle.
As I sat there giving him the bottle, I started flipping through my phone, attempting to mindlessly pass the time as Oliver fell asleep with the bottle in his mouth. Shortly into that exercise, I passed by a fantasy football app called DraftKings that a friend had told me about some time before. I started looking at it and noticed that they had a contest running that Sunday called “The Millionaire Maker”. As the name would imply, the winner would receive $1 million for his troubles. The entry was $20 and all 227,000 entrants were tasked with assembling a team of players whose stats would be measured against one another during the course of the day’s games and then added up. High score wins.
Straightforward enough, I thought, as I read through some of the contest’s rules:
6 points for a touchdown
0.1 points for each rushing or receiving yard
$20 to enter
I knew nothing about DraftKings other than the fact that I was bored, it seemed like a decent way to pass the time, and $20 didn’t seem all that onerous for a day of fantasy football fun. I immediately began filling out my team. As I passed by players, I picked those that were familiar to me… Marcus Mariota at quarterback, Melvin Gordon at running back, and so on…
Fate’s first intervention: As I rounded out my team, I had one position left to fill, the flex spot. Flex is a position that allows for any position player other than a quarterback to be used. As I went to pull up my options, Oliver suddenly awoke and was none too pleased to be up again. He immediately started crying. I instantly picked the first player whose name popped up on the screen… Latavius Murray.
The rest of that day was about as normal as you could imagine. My older son Jonah had a baseball game. I caught up on a little bit of work. We took the boys out for a walk.
At 5:30pm, we ventured out to our favorite Chinese restaurant to have dinner. As we were walking out the door, I glanced at the DraftKings app on my phone and was shocked to see myself in 60th place out of 227,000 players! I was up $1,000. I immediately looked for the “cash out” button, convinced that I would be able to take my 50x return over the course of the past 12 hours and buy us all a nice dinner. Unfortunately, there was no such button. I would have to wait for the evening game between the Oakland Raiders and Denver Broncos to be able to collect my winnings. That game would feature only one player from my team, the running back for the Oakland Raiders… the aforementioned Latavius Murray.
We then went through another normal Sunday night dinner and I forgot about the game completely. As we were walking out of the restaurant, I noticed a small TV in the corner of the bar showing the game. As I walked by, Latavius Murray was scoring a touchdown.
30th place. $2,500.
Now this was getting real.
We loaded the kids into the car (which, by the way, takes like 20 minutes for some reason) but I had forgotten my jacket inside, I walked back in to grab it. As I walked back out through the bar, Latavius Murray was running in another touchdown after a quick interception from his defense.
2nd place. $150,000.
Now I was nervous.
We got home and the rest of the evening was a blur. The kids went to bed. We may have watched something on TV. I honestly don’t remember it that well, other than at around 8:30 when I turned the game on to see what was happening.
4:00 left in the game. Oakland had the ball. 3rd and 20 from their own 45 yard line. They had a 10 point lead.
Fate’s second intervention: For some reason, and if you understand football you will understand how crazy this is, Oakland decided to throw a Hail Mary pass into the end zone on that play. As the receiver jumped to grab the ball, the Denver defender immediately collided with him. The referee’s whistle blew…
“Pass interference, defense. Ball will be placed at the Denver 1 yard line.”
Now the Raiders would surely run the ball with Murray. All he had to do was get 1 yard further into the endzone and he would earn me an additional 6.1 points…
And $1 million.
Oakland’s quarterback snapped the ball on first down and… faked to Murray in favor of throwing a pass to his wide open tight end in the end zone.
No one around him.
Just grab the ball and spike it. Game over.
Fate’s third intervention: He dropped it.
Second down. Handoff to Latavius Murray. Touchdown.
The rest of this post should be spent with me telling you about the wonderful lessons I learned from winning $1 million in a day.
But here’s what I learned:
Nothing.
I learned nothing because the process that I went through to achieve that outcome required little to no thought and was based almost entirely on luck.
I learned nothing because the outcome itself didn’t make me any smarter or better for the next time.
One way to determine whether an activity requires skill is to ask whether you can lose at that activity on purpose. For example, baseball players can swing at all of the balls that come their way or wait for a strike. Pretty simple to understand that baseball involves skill since one could intentionally throw the outcome of the game.
Investing is a little more complicated when viewed through this lens, though, because if I asked you to construct a portfolio that would automatically underperform an index, there’s no guarantee that you could do it. This is the simplest explanation for the presence of luck in investing.
But investing certainly requires some (actually a lot of) skill, too. You have to understand correlations between various asset classes, how companies are capitalized, and how economic changes will impact the overall landscape. But even if I gave you the variables ahead of time, you would still need to predict the market’s reaction… and there is a lot of luck involved in that.
On March 23rd, The Federal Reserve dramatically stepped up its efforts to stave off another economic depression by promising to establish its first-ever special entity to buy corporate bonds and ETFs.
The bond market responded in kind by roaring back and basically collapsing spreads. Here’s what that looked like in chart form:
(Reminder that yields and prices move inverse to one another so lower is "better" on this chart!)One week after the Fed’s announcement, I started poking around to see where opportunities might still lie in credit markets and came across high yield bonds, which at that point still looked relatively cheap. Cheap enough, I thought, that I could invest in them for clients and write a blog post about it (you can read that post here).
My investment thesis was threefold (and insanely simple):
- High yield had a spread of over 9% against its high-quality fixed income counterparts, a historically attractive entry point (yields and prices move inverse to one another).
- High yield bonds actually represent a contractual obligation for an issuer to pay and, thus, are easier to value than equity.
- Even if you saw historic highs in default rates and historic lows in recovery rates, you were being compensated for that risk (given the high coupon amounts) if you could hold on for 2-3 years.
BUT FOR NONE OF THE REASONS STATED ABOVE.
No, something happened that I couldn’t predict. No one could have predicted it…
Eight days after that post was written, the Fed added high yield bonds to their list of assets that could be purchased in their special entity.
For the first time in history, the largest buyer of assets in the world would be a buyer of high yield.
And higher high yield went…
So was I skillful or lucky? Well, like with most investments that work out (so far!), it was probably a little bit of both.
The analysis of the market to understand where we were from a yield and overall default/recovery expectations perspective undoubtedly required a certain amount of skill. Taking that one step further and implementing it in an overall portfolio design definitely took a greater degree of skill.
The timing of it couldn’t have been more lucky though. Like, it’s crazy how lucky I got. I follow most everything that Fed Chairman Powell utters at this point but even I was surprised to see them make the high yield announcement… it just doesn’t really match with their overall mandate.
I could have been lazy and waited a week to write the post.
I could have been early to the call when high yield started to look attractive earlier in March.
I could have chosen to let the market settle out a bit.
But none of those things happened and within one week of writing that post, high yield was 10% higher in price. So, yea… it was a good bit of both luck and skill. But, like Gary Player famously used to say, “The more I practice, the luckier I get.”
There are perhaps few more qualified to speak to the intersection of skill and luck in investing than Michael Mauboussin. As an investment strategist, director of research, and finance professor, Mauboussin has had a front seat to the interplay of the two throughout his investment career.
In his book The Success Equation, Mauboussin perfectly untangles the differences between skill and luck in a variety of different activities. The book is full of great insights but here are a few of my favorites:
The paradox of skill — In endeavors where skill is more important to the outcome, luck's role in determining the ultimate outcome actually increases. On the other hand, in activities where luck plays a larger role in the outcome, skill is still important but difficult to ascertain without a large enough data set.
The Matthew Effect — This is the idea that the most successful individuals tend to grow more successful while the poor grow poorer due to the endowment effect of early success, which may be due to good luck and not skill alone.
Favorites should simplify the game — If one has superior resources, he should try to concentrate his battles in fewer fields than if he was the underdog. Increased complexity increases the role of luck and gives the underdog an advantage in competition while diluting the advantage of the stronger player.
Like a professional poker player would do, great investors figure out ways to tilt the odds in their favor rather than rely solely on either luck or skill alone.
Winning $1,000,000 in an afternoon is pretty cool.
In my case, it also made people think I was an expert in something I knew practically nothing about. Since that fateful day I’ve been asked to use my expertise to write a column about fantasy football, appear on a podcast to give my predictions, and consult for a fantasy sports website.
I never accepted any of the offers.
While all of them were well meaning, I don’t think any of them accurately understood the role that luck played in the outcome. My thesis on why that’s hard to understand is that our brains have a difficult time processing incredibly low probability outcomes. There were 227,000 entries in the contest that day. Assuming it was a level playing field (which it probably wasn’t), I had a 0.00044% chance of winning. Said differently, I had a 99.99956% chance of losing. But I didn’t lose… and that’s why so many people think that I must have somehow tilted the odds in my favor.
Trust me on this one… I didn’t.
Like the poker player who catches a backdoor flush on the river or a portfolio manager who buys growth stocks regardless of their valuation (sorry... had to take a shot at growth!), I got lucky and, over the short haul, lucky beats good every time.
I’ve played in the Millionaire Maker contest a number of times since my big win. It’s still fun for me even though I’ve probably been a net loser since then. There was one week where I thought I was going to win again but, alas, some no name wide receiver for the Colts caught a long touchdown with no time remaining in a meaningless game to plummet me down the standings.
Sometimes you just can’t shake bad luck.
