If you happen to be one of the lucky few who’ve had million dollar lottery payouts, by all means skip the rest of this article.
But for the rest of us losers, which sadly includes me, its time to get real about coming up with a plan for financial security that doesn’t involve a million-to-1 long shot.
On second thoughts, judging by the riches to rags stories you hear about some lottery winners, maybe they should keep reading too!
Looking for the easy way out
I’ve got nothing against throwing away a dollar or two for the chance at winning millions. After all, it’s not every day that you get a chance at a seven figure payday — and just the entertainment value alone of pondering the impact that a multi-million jackpot could have is worth something.
But for some players, there’s clearly more going on than simple entertainment. Stories about people buying hundreds or even thousands of dollars’ worth of lottery tickets are everywhere. And while some of those big spenders can afford to part with the cash, others appear to be making their wagers as their only hope of ever being financially secure.
That phenomenon is a symptom of the failure of some Australians to become financially adept. Most successful investing doesn’t involve quick payoffs or big gambles but rather slow and steady gains that eventually add up to substantial wealth. That may not be very exciting, but your odds of success are a whole lot better than with picking some numbers out of a big hat.
Investing is not gambling
In addition, on the surface, investing may seem like just another version of gambling. Some stocks make people rich, while others lose all their value and leave their shareholders penniless.
But the vital difference is that investing outcomes aren’t random. By looking closely at businesses and their prospects, you can form educated opinions about their future performance. You won’t always be right — but it won’t simply be a shot in the dark.
Perhaps more important than that, with the lottery, there’s only room for one winning set of numbers. Shareholders don’t have to worry about only one stock being a winner.
Invest in the gambling companies
Instead of gambling away your money, why not take a punt on some of the companies that operate in our gambling industries? After all, it’s a healthy industry and we know our fellow Aussies love a punt.
First up, two of the giants of the ASX. Woolworths Limited (ASX: WOW) and Wesfarmers Limited (ASX: WES), both with market caps over $30Bn, each own thousands of poker machines through the hotels they own. Woolworths actually owns more poker machines than five of the top casinos in Las Vegas, and makes $874m per year from its pokies.
Aristocrat Leisure Limited (ASX: ALL) and Ainsworth Game Technologies Limited (ASX: AGI) both make the poker machine cabinets, the software that runs on them, as well as software to network them together and administer the poker machines. I’ve written about both Aristocrat and Ainsworth recently.
If you want to invest in the companies that run casinos, first stop is Crown Limited (ASX: CWN). The company owns casinos in Melbourne and Perth, as well as a one-third shareholding in Melco Crown Entertainment Ltd (NASDAQ: MPEL), which owns casinos in Macau. Crown also owns the Aspinalls Club in London and interests in online betting exchange Betfair Australasia and casino operators US-based Cannery Casino Resorts and UK operator Aspers Holdings.
Echo Entertainment Limited (ASX: EGP) owns and operates casinos in Sydney, Brisbane and the Gold Coast, and you may have seen its Star attraction (pun intended!) in the media recently. Crown owns over 9% in Echo, and it’s my top tip for a 2012 takeover (tongue-twister not intended).
Another smaller company is Reef Casino Trust (ASX: RCT) which is an Australian property trust (or A-REIT) – with just one property – the Reef Casino in Cairns. It doesn’t actually own the casino, but charges rent to the casino as well as the restaurants and the hotel all located on the property.
The company is profitable, earning $5.8m in 2011 on revenues of $22m, a rise of 52% over 2010, and expects to at least maintain its profitability in 2012. Trading on a P/E of just 9 and a trailing dividend yield of 6.7%, it could be an interesting punt.
Lotteries, sports wagering, horse racing
The big two companies in this space are Tabcorp Holdings Limited (ASX: TAH) and Tatts Group Limited (ASX: TTS). My colleague Scott Phillips outlined his views of these two companies in this article, late last year.
Both companies operate poker machines, horse racing and sports wagering around Australia. Tatts Group also has Lottery licences in Victoria, NSW and Queensland, while Tatts Group runs Keno in licenced venues in NSW, Queensland and Victoria (the latter in conjunction with Tabcorp).
Jumbo Interactive Limited (ASX: JMB) is another small company operating in the lotteries sector. Jumbo sells lottery tickets and developed OZLotteries.com. The company is expanding into the US and the UK and European markets, which are huge markets compared to Australia. Currently trading on a P/E of 8, it looks cheap and definitely worthy of further research.
The Foolish bottom line
While some of these companies may or may not be worthwhile investing in at the moment, my main point is that if you’re counting on the lottery, pokies or gambling to help rescue your finances, there’s a better way. Rather than gambling with a lottery ticket, betting on a hot race tip or playing the pokies, think about the companies that would be taking your money, reverse the situation, and make them work for you.
If you’re looking for more ASX investing ideas, look no further than “The Motley Fool’s Top Stock for 2012.” In this free report, Investment Analyst Dean Morel names his top pick for 2012…and beyond. Click here now to find out the name of this small but growing telecommunications company. But hurry – the report is free for only a limited period of time.
Motley Fool contributor Mike King owns shares in Woolworths. The Motley Fool’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Click here to be enlightened by The Motley Fool’s disclosure policy.
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