Victor Haghani, co-founder of LTCM and author of the book 'The Missing Billionaires', analyzed the feasibility of becoming a billionaire through high-risk investment strategies. Using a model of 50 coin flips with a 60% probability of success, he demonstrated that maximizing the chance of reaching a billion-dollar goal leads to a 93% probability of total bankruptcy.
The optimal strategy for this goal requires betting up to 100% of capital, which Haghani describes as a recipe for ruin rather than an investment plan. Even if the probability of success is adjusted, the strategy remains flawed because it ignores the negative utility of bankruptcy. A more rational approach, such as betting a moderate 10–20% of capital, significantly improves expected utility but makes reaching a billion-dollar target nearly impossible.
Haghani compares this model to the stock market, noting that only about 100 out of 30,000 US companies over the last century have provided a 500-fold return. While selecting such stocks is possible, the risk of failure is high. He concludes that the choice of objective function dictates the strategy, and setting 'billionaire status' as the sole goal often leads to disastrous financial outcomes.
