Pettit Funds

From the Carnegie Mellon site:

Why Play a Losing Game? Carnegie Mellon Study
Uncovers Why Low-Income People Buy Lottery Tickets

PITTSBURGH—Although state lotteries, on average, return just 53 cents for every dollar spent on a ticket, people continue to pour money into them — especially low-income people, who spend a larger percentage of their incomes on lottery tickets than do the wealthier segments of society. A new Carnegie Mellon University study sheds light on the reasons why low-income lottery players eagerly invest in a product that provides poor returns.

In the study, published in the July issue of the Journal of Behavioral Decision Making, participants who were made to feel subjectively poor bought nearly twice as many lottery tickets as a comparison group that was made to feel subjectively more affluent. The Carnegie Mellon findings point to poverty’s central role in people’s decisions to buy lottery tickets.

“Some poor people see playing the lottery as their best opportunity for improving their financial situations, albeit wrongly so,” said the study’s lead author Emily Haisley, a doctoral student in the Department of Organizational Behavior and Theory at Carnegie Mellon’s Tepper School of Business. “The hope of getting out of poverty encourages people to continue to buy tickets, even though their chances of stumbling upon a life-changing windfall are nearly impossibly slim and buying lottery tickets in fact exacerbates the very poverty that purchasers are hoping to escape…” [Rest of article]

This is a pretty disturbing story from the FREAKONOMICS Blog at the NY TIMES. I have run into this phenomenon all through my career as an attorney/tax advisor/investor, and have also run into it all the time dealing with friends and family who are othewise intelligent and informed but virtually clueless regarding their finances. For some reason, even though there is a very good chance that (if you do it right) you will, in your lifetime, make more money with your investments than with all of your paychecks, people just don’t educate themselves on these matters:

Let’s begin with two questions:

1. Do you consider yourself financially literate?

2. If so, how did you get that way?

And now, a third question:

3. How important is widespread financial literacy to the health of a modern society?

Before you answer the first question, take this little quiz, borrowed from the website of Annamaria Lusardi, a professor of economics at Dartmouth who knows and cares more about financial literacy than anyone else you’re likely to encounter:

1. Suppose you had $100 in a savings account and the interest rate was 2 percent per year. After 5 years, how much do you think you would have in the account if you left the money to grow?

a. More than $102
b. Exactly $102
c. Less than $102
d. Do not know

2. Imagine that the interest rate on your savings account was 1 percent per year and inflation was 2 percent per year. After 1 year, would you be able to buy more than, exactly the same as, or less than today with the money in this account?

a. More than today
b. Exactly the same as today
c. Less than today
d. Do not know

3. Do you think that the following statement is true or false? “Buying a single company stock usually provides a safer return than a stock mutual fund.”

a. True
b. False
c. Do not know

The correct answers are …[Rest of article]

Ok…

Here’s a couple of weird ones. I’ve already bought them both this morning. I’m not going to recommend you bet the farm on them, because I think they’re both highly speculative.

But they’re interesting.

The first one is Internet Gold – Golden Lines, Ltd. (IGLD). They are an Internet provider in, gulp, Israel. Ridiculously low price/earnings ratio.

If you think I’ve completely lost my mind maybe you’ll like Capital Trust, Inc. (CT). What is it? A real estate investment trust? A REIT?!!! Am I crazy?! Those have been out of favor for years! Real estate? In this market??

We’ll see.

From MSNBC:

DES MOINES, Iowa - Tayeeb Foods Inc. always enjoyed a modest profit, but Nazar Osman said running his six-year-old Sudanese grocery was never about the money.

Now the survival of his store in Coralville depends on finding money, but unlike hundreds of other small Iowa businesses affected by last month’s flooding Osman can’t accept low-interest loans from the federal Small Business Administration.

Like many Muslims, he takes a strict interpretation of the Quran’s prohibition against paying interest. [Rest of article]

***

And there you have it, folks: Why the 1 billion or so people in the Muslim world are destined to remain in relative poverty until they receive financial “enlightenment”.

I read the other day that there are hundreds of billions of dollars of oil wealth just…sitting there, because earning interest on it violates their law. Tragic.

The Old and New Testament have various conflicting (what a surprise!) comments about the propriety of charging interest and having debt. GOOGLE for financial inspiration.

I could not have gotten where I am today without “healthy” debt: school loans, business loans, mortgages. Interest is not evil; investing is good; use of money has value. Keep borrowing, people. But wisely.

And stay away from the “payday loan” places…

***

By the way, it would not surprise me if, after all of this publicity, Mr. Osman receives an outpouring of financial support from his Muslim community and is able to start up his business again–all according to his god’s Great Plan.

So his success will come not from his hard work and business acumen and willingness to take a risk to get ahead to support himself and his family, but from adopting a posture of victimhood and willingness to take charity.

Whatever…