How not to lose money in Make a Million

I have a clear strategy for how not to lose money playing the Make a Million competition. As I explain it, you may come up with some smart tactics to win the competition and enhance your returns, but you’re on you’re own there.

So, how does one not lose money with the Make a Million competition?

Don’t enter.

You are overwhelmingly like to lose money if you enter this competition. I’ve said this before, and I’ve been right before. I’m right again.

There’s also the little idea that the  structure of the Make a Million competition increases risks of  financial meltdown

Let’s look at some hard statistics to show what I mean.

Telling statistics (what they don’t show)

In the MaM presentation, the organisers include some interesting statistics about number of trades, trading activity and many other metrics.

They don’t show average returns or performance.

So let’s look at some of the numbers:

Raw return data (excluding prize money) based on 2009 MaM competition.

Average Return -11.49%
Expected Loss R 1,149
Median Return -15.06%
Mode Return -9.12%
Probability of breaking even 25.00%
Probability of earning less than 10% 83.00%
Probability of doubling money 1.78%
Probability of winning 0.20%

Suddenly the competition doesn’t look so great, does it?  (This isn’t the first time, here is my analysis of the Comedy and Tragedy that was the 2008 Make a Million competition.)

Here’s a little explanation of each of the items in the table:

Average Return

This is the return than you can expect to make on average. Yes, that’s a loss of over 10% of your investment. For all the talk about trading opportunities by the MaM organisers and sponsors, the trading result of this competition (ignoring prizes) is that more money is lost than is made.

Expected Loss

This is the total Rand amount you will lose on average (again ignoring prizes) by entering the competition. Quite a steep price. (The prize money makes the competition profitable on average, but only in a very skewed manner that only helps one person.  More on this in a bit)

Median Return

This is the return that half the entrants earned less than, and half the entrants earned more than. Half the participants lost more than 15% of their investment.

Mode Return

This is less intuitive to understand. The most common result for a entrant was to lose 9% of their starting stake.

Probability of breaking even, earning less than 10% or doubling money

Hopefully these are reasonably self-explanatory. What’s clear is that there is a high probability of doing badly, and a low probability of doing well.

Probability of winning

Ultimately your probability of winning serious money is still very low.

Great returns and manageable risk?

The MaM roadshow presentation concludes that there exist opportunities for great returns and manageable risk. I’m not sure what definition they’re using for “great returns” or “manageable risk” but in my book the returns are low and the risk is high. Look at the figures in the table above and explain how that can be interpreted any differently.

Is there any good news at all?

In fairness, there is a million rand prize available for the winner. This doesn’t change the probability of winning, the probability of earning 10%, the probability of doubling your money, the probability of losing any particular amount, but does add extra winnings to the best performer, which increases the average return considerably to 8.5% over the period. So yes, if you win, you will win. Remember the 0.2% probability of winning. In odds, that is about 500:1 against.

Winning strategies

There are some strategies than can help you win Make a Million.  They’re not really legal or ethical but you might want to know the sort of thing your competitors may be up to.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.

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