BRK go to for weird risks - NCAA bracket bet

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lazyday
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BRK go to for weird risks - NCAA bracket bet

Post by lazyday » Tue Jan 21, 2014 11:57 am

http://www.businessweek.com/news/2014-0 ... ncaa-bet-1

BRK annual reports have discussed the economics of guaranteeing index derivatives, reinsurance, and other risks. And how BRK has an advantage vs competitors.

I'd be worried about fraud in this case, but if BRK itself gets data for all sumbissions early, should be very low risk.
Warren Buffett’s Berkshire Hathaway Inc. (A:US) is backing a $1 billion prize offered by Quicken Loans Inc. if a contestant predicts the winner of each game in the National Collegiate Athletic Association’s men’s basketball tournament.
....
Berkshire has specialized in unusual insurance risks (A:US) for decades, protecting clients against big losses in return for premium payments. The Omaha, Nebraska-based company won a bet in 2010 on the World Cup after France was eliminated from the tournament in South Africa. Berkshire has previously guaranteed against the potential payout of $1 billion in a contest sponsored by PepsiCo Inc.
....
capped at 10 million entrants
....
odds of picking every winner correctly in a 64-team bracket are less than 1 in 9 quintillion....with some basketball knowledge, that only improves to about 1 in 128 billion, he said in a video posted on YouTube

dumbmoney
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Re: BRK go to for weird risks - NCAA bracket bet

Post by dumbmoney » Tue Jan 21, 2014 2:37 pm

Zero market correlation.
I am pleased to report that the invisible forces of destruction have been unmasked, marking a turning point chapter when the fraudulent and speculative winds are cast into the inferno of extinction.

Rolyatroba
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Re: BRK go to for weird risks - NCAA bracket bet

Post by Rolyatroba » Tue Jan 21, 2014 2:51 pm

I saw this and wondered what the premium was/is that Quicken Loans had to pay for this policy. It would be trivial for the actuaries to calculate the expected payout. I'd bet the premium is highly correlated with the number of entries.

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kenyan
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Re: BRK go to for weird risks - NCAA bracket bet

Post by kenyan » Tue Jan 21, 2014 4:17 pm

I don't consider this to be a risk. Nobody is going to guess the bracket 100% correctly (particularly with a 10 million entry cap).
Retirement investing is a marathon.

Wagnerjb
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Re: BRK go to for weird risks - NCAA bracket bet

Post by Wagnerjb » Tue Jan 21, 2014 5:29 pm

lazyday wrote:odds of picking every winner correctly in a 64-team bracket are less than 1 in 9 quintillion....with some basketball knowledge, that only improves to about 1 in 128 billion, he said in a video posted on YouTube
Do you really need any basketball knowledge? Just pick based on the ranking of the teams. Pick the favorites all the way through. That gives you the best odds. Like investing in low-cost passive funds.
Andy

bobbun
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Re: BRK go to for weird risks - NCAA bracket bet

Post by bobbun » Tue Jan 21, 2014 5:48 pm

Varying just a little from the favorites probably doesn't reduce the odds of winning a whole lot, but it almost certainly increases the odds of not splitting the prize dramatically. So I don't think I would go exactly for the favorites as published on a popular list.

solonseneca
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Re: BRK go to for weird risks - NCAA bracket bet

Post by solonseneca » Tue Jan 21, 2014 5:56 pm

" $1 billion prize offered "

Cash value is only half this. Then you have to take out taxes, accounting fees, shipping and handling, parking, undercoating, etc. What you have left is only sandwich money.

Cheers

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Ged
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Re: BRK go to for weird risks - NCAA bracket bet

Post by Ged » Tue Jan 21, 2014 6:52 pm

Wagnerjb wrote:
lazyday wrote:odds of picking every winner correctly in a 64-team bracket are less than 1 in 9 quintillion....with some basketball knowledge, that only improves to about 1 in 128 billion, he said in a video posted on YouTube
Do you really need any basketball knowledge? Just pick based on the ranking of the teams. Pick the favorites all the way through. That gives you the best odds. Like investing in low-cost passive funds.
While this reduces your odds somewhat, it's still 1 in 128 billion.

Good luck with that.

sunnyday
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Re: BRK go to for weird risks - NCAA bracket bet

Post by sunnyday » Tue Jan 21, 2014 8:02 pm

I think there's about a .0007% chance of someone winning. Does anyone know how gambling insurance policies work -- Quicken loans may have paid very little for those extreme odds. Now think about how much advertising and personal information they're going to get from the media and 10 million sign ups.
Wagnerjb wrote:
lazyday wrote:odds of picking every winner correctly in a 64-team bracket are less than 1 in 9 quintillion....with some basketball knowledge, that only improves to about 1 in 128 billion, he said in a video posted on YouTube
Do you really need any basketball knowledge? Just pick based on the ranking of the teams. Pick the favorites all the way through. That gives you the best odds. Like investing in low-cost passive funds.
Not a good idea because tons of other people will do this. You would have to split the pot with all those people. I'd rather take a chance with some upsets and have the pot to myself :moneybag

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Garco
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Re: BRK go to for weird risks - NCAA bracket bet

Post by Garco » Wed Jan 22, 2014 11:57 am

You can't just go with the "favorites." One reason is that the seedings in the tournament brackets have some biases so that some relatively mediocre teams get a favorable seed or are placed in a favorable region. Another reason is that factors such as the location of the given round matter so that teams that have large "traveling" fan-bases and/or play the early round close to home have an advantage, relative to their seeding. These are a couple of the factors that Nate Silver adjusts for when deriving bracket odds: http://fivethirtyeight.blogs.nytimes.co ... a-a-picks/

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dphmd
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Re: BRK go to for weird risks - NCAA bracket bet

Post by dphmd » Wed Jan 22, 2014 12:27 pm

There is also the fact that upsets occur in the tournament on a regular basis (like quasi-black-swan events). It only takes one completely unpredicted outcome out of 67 games to disqualify one's bracket.

And then there is this: http://money.cnn.com/2014/01/21/news/co ... a-bracket/
John Diver, director of product development for ESPN Fantasy, said in the 13 years that ESPN has offered NCAA bracket contests, no one has ever come close to a perfect bracket, even though there have been about 30 million entries. In fact, only once in the last seven years has anyone gotten the first round perfect.
All that said, there is no cost to enter, so the expected value is still positive (unless you count the value of your time, in which case it is probably negative for most of us). Worth a shot.
Discipline is freedom.

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linenfort
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Re: BRK go to for weird risks - NCAA bracket bet

Post by linenfort » Wed Jan 22, 2014 3:55 pm

I can't wait to enter. There doesn't seem to be a link yet, even at quicken loans.
bogleheads, don't knock state lotteries. They helped defund the mafia.

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HomerJ
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Re: BRK go to for weird risks - NCAA bracket bet

Post by HomerJ » Wed Jan 22, 2014 4:14 pm

Someone pointed out that there are 14 players per team, 64 teams... That's 896 players...

Pay each one $100,000, and control who wins what game. That's only $89 million for a $500 million payout ($250 million after taxes)

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Garco
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Re: BRK go to for weird risks - NCAA bracket bet

Post by Garco » Wed Jan 22, 2014 4:33 pm

HomerJ wrote:Someone pointed out that there are 14 players per team, 64 teams... That's 896 players...

Pay each one $100,000, and control who wins what game. That's only $89 million for a $500 million payout ($250 million after taxes)
Not a bad idea. But remember that they now have 4 play-in teams (the so-called "First-Four" round). So your cost will have to increase accordingly by $5.6 million to buy off the additional 56 players.

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magician
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Re: BRK go to for weird risks - NCAA bracket bet

Post by magician » Wed Jan 22, 2014 4:53 pm

Wagnerjb wrote:
lazyday wrote:odds of picking every winner correctly in a 64-team bracket are less than 1 in 9 quintillion....with some basketball knowledge, that only improves to about 1 in 128 billion, he said in a video posted on YouTube
Do you really need any basketball knowledge? Just pick based on the ranking of the teams. Pick the favorites all the way through. That gives you the best odds.
It probably doesn't give you the best odds, but it gives you the best defense when you miss a pick.
Simplify the complicated side; don't complify the simplicated side.

Silverado
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Re: BRK go to for weird risks - NCAA bracket bet

Post by Silverado » Wed Jan 22, 2014 7:04 pm

Warren was just on the Dan Le Batard show on ESPN Radio and they asked him about it. He was a good interview, pretty cool. He said "it's not even money", no surprise really that BRK did the math.

It was a hoot to hear him with Dan and crew. They asked about an anecdote showing his frugality. He said they had a slot machine on the third floor, and he would pay the kids' allowances in dimes and let them on the third floor. "I'd have the whole allowance back by morning".

He also said he recently arm-wrestled N. Suh (Buffet lives in NE, meaning he MUST follow the Cornhuskers. Suh is a recently famous Cornhuskers for those not football fans. He is big, strong (a brute).) Warren said "I made him sign a statement the he wouldn't sue me if I hurt him.....then I took him"

Good stuff.

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ofcmetz
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Re: BRK go to for weird risks - NCAA bracket bet

Post by ofcmetz » Wed Jan 22, 2014 7:10 pm

Flip a coin for each game and then make your picks. Then post in the investment help section on how to invest your windfall.
Never underestimate the power of the force of low cost index funds.

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