On a recent edition of the Trillions podcast, Joel Weber asked Barry Ritholtz about some of the surprising lessons he has learned interviewing many of the luminaries in the world of investing and finance. Ritholtz noted:
“The role of luck in successful people’s lives. This isn’t false humility. When you have people like Leon Cooperman and Howard Marks and Ray Dalio say: “It helps to be smart, but you have to get lucky.” I have heard that over and over again.”
This idea that both skill and luck play a role in nearly every outcome, including the careers of the most successful investors in the world, is a powerful one. Once you recognize that luck or chance, whatever the amount, is important makes you view the world in very different ways. You can no longer look at the cover of a business magazine featuring a Fortune 500 CEO or hot startup founder the same way again.
For me, this notion was crystallized in the work of Michael Mauboussin, most famously in his book The Success Equation: Untangling Skill and Luck in Business, Sports and Investing. Since then I have written a number of posts that touch on how luck plays a role in our (investing) lives. A few examples:
- Luck, skill and the dangers of focusing on past performance
- Making your own luck in a generational role of the dice
- Hard work, good luck and life’s potholes
- Three proven steps to ‘instant alpha’
- Connections, good luck and just holding on
- Skill, luck and the 1987 stock market crash
It isn’t enough to simply acknowledge that luck plays a role in our lives and the people around us. We need to also recognize that we are biased in a very specific way when we think about luck. David Roberts at Vox writes:
Of course, people aren’t nearly as eager to take credit for their failures and flaws. Psychologists have shown that all humans are subject to “fundamental attribution error.” When we assess others, we tend to attribute successes to circumstance and failures to character — and when we assess our own lives, it is the opposite. Everyone’s relationship with luck is somewhat self-interested and opportunistic.*
Even if we recognize our biases, but we need to actively work to offset them. One way we can integrate this viewpoint on luck into our lives is to cultivate gratitude for those things we already have. In a prior post I wrote:
Gratitude has nothing to do (directly) with becoming a better investor. What gratitude does is increase our appreciation for what we already have.
None of this says that you shouldn’t work hard and focus on those things on you can directly impact. However, sometimes that means saying no to people. As Ben Carlson at A Wealth of Common Sense writes:
It’s actually a good thing to say ‘no’ from time to time because taking on the wrong type of client is a waste of both parties’ time. You can’t always save everyone and you don’t have to take every client that throws money at you. Let someone else deal with the problem clients.
Just as we can be grateful for what we have, we can have compassion for others who are not on the same wavelength. Acknowledging luck doesn’t require you to be an easy mark for those who don’t share your worldview and don’t value your time.
*Roberts in his Vox article contemplates how acknowledging luck has a fundamental moral component to it. I will leave you to read the entire thing to understand his argument.