Separating Skill And Luck

Patrick O’Shaughnessy posed this question, “If you had to ask every investor that you admire most the same single question (and they had to answer truthfully), what would you ask them?” Morgan Housel answered, “How do you measure skill vs. luck on your own success?” Beyond our favorite investors, this is a great question for all of us.

Skill implies something we can replicate. Luck implies something else intervened in the results. The human psyche typically wants full credit for good outcomes and to blame bad luck on the negative ones. Objectively we (can) know it’s true, intuitively it’s humbling. Very humbling. Pinning the question on success gets to the heart of it.

Recognizing skill builds us up, while recognizing luck keeps us grounded. Skills keep us in the game, but luck, when skewed to the upside, is what turns good to great. That’s what we love about our favorite investors, our favorite action movie characters, and every classic romance: the downsides were mitigated, even in the face of terrible luck, and the upside eventually came roaring through.

If we want to build on our own success, it starts by focusing on the skills we can replicate, and ends with the upside optionality we can hope to capture over time. There’s no certainties here, but there is confidence in a good process and seeing it through. Respect the luck. And get back to work.

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