Those who assert that everything is predestined
still look before they cross the street.
Luck has been a theme of several of my posts. Why? I think people highly underestimate the role of luck in their lives. Below I list three articles I recently read which discuss some of that hidden luck.
1. Lucky Prime Ministers
Andrew Gimson recently wrote “Grimson’s Prime Ministers: Brief Lives from Walpole to May” and then in this article he discusses 12 traits of the British Prime Ministers he feels were successful — note, “luck” is number two. Courage, Luck, Hunger for power and more. Surprisingly, Donald Trump has many of these, including the luck of born into wealth. But the writer seems to be a British Conservative and so what he considers “successful” may be controversial. Nonetheless, Luck must always be considered.
2. Computer Proves Luck in Wealth
Rich people are often quick to tell you the exact reasons they are rich and seldom do they include “luck”. Instead, they tell us their financial success is either because they are bright, clever, talented, risk-taking, hard-working or in possession of some other virtue that most of us are missing. In they end, they feel they earned their wealth and deserve it.
Most of the human traits often given as the cause of financial success, are distributed in a normal distribution, but it seems that wealth is instead distributed in a power distribution (as I described in my previous post). This article discusses research headed by Alessandro Pluchino at the University of Catania in Italy that show us that luck is the biggest player in wealth. The group created a computer simulation of people randomly given bad or good luck events and shows the effect replicates the power laws which we see in the world where 20% of people on the planet controlling 80% of the wealth.
3. Lucky Investors
When things are going well, usually underestimate the role of luck in our personal lives. Financial investors ignore luck in their choices often. Study upon study has shown how random choice of stocks can often be as profitable as having an “expert” choosing stock.
This article by Morgan Housel defines “risk” and luck as mirrored cousins: “If risk is what happens when you make good decisions but end up with a bad outcome, luck is what happens when you make bad or mediocre decisions but end up with a great outcome.” Which I find a bit odd, but given those definitions, I agree with his conclusion that “experiencing risk makes you recognize that some stuff is out of your control, which is accurate feedback that helps you adjust your strategy. Experiencing luck doesn’t. It generates the opposite feedback: A false feeling that you are in control, because you did something and then got the outcome you wanted. Which is terrible feedback if you’re trying to make good, repeatable long-term decisions.”
One of his conclusion is that “Good investors attempt to quantify risk. They should do the same for luck.” I agree, and it holds for all of us.