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PROVO -- Finance professors say you'll never become the next Warren Buffett by playing it safe in the stock market. But a BYU study shows some investors are willing to lose money for the chance of buying stocks that have a very remote chance of skyrocketing.
BYU Finance Associate Professor Keith Vorkink says, "They'll compromise stable returns for the chance of hitting a home run."
Vorkink co-authored the university's latest study and says he equates it to playing the lottery.
"The average return on buying a lottery ticket is negative," he points out. "Most of the time, you just lose the dollar or whatever it takes to buy the lottery ticket. It's only the rare occasion that you actually win."
What kind of stocks qualify? Vorkink says we saw a lot of these in the ‘90s with tech stocks.
"In general, we find that these are young stocks [and] that's not surprising. [They also include] smaller market capitalization stocks," he says.
Buying these stocks may not be a bad idea if you're comfortable with that risk, but as a teacher, Vorkink just can't recommend his students buy them.
"The difference between these lottery return stocks and typical stocks was on the order of 12 percent a year," he says.
Twelve percent may not sound like much, but keep in mind, if you earn 12 percent a year, Vorkink says you could typically double your money in a decade.
E-mail: pnelson@ksl.com
