Read of the Day: Are You Brilliant or Just Lucky?

I’m really on a Michael Mauboussin kick here with all the press he’s doing for his new book.  Combined with some good insights from Jason Zweig, I found this article pretty entertaining:

“Michael Mauboussin, chief investment strategist at Legg Mason Capital Management and author of “The Success Equation: Untangling Skill and Luck in Business, Sports and Investing,” published last month, has some answers to this puzzle.

Precisely because most professional investors are so skillful, he says, their results end up being differentiated largely by luck, much the way contests between equally matched great athletes are often decided by a bad bounce of a ball. Just as athletes rarely admit that luck turned the tide, investors attribute differences in performance to skill alone.

In one classic experiment, people guessed the outcome of a coin toss. When told they got the first four tosses correct, they concluded on average that they would be able to guess 54 of the next 100 coin flips. “When you observe a good outcome,” Mr. Mauboussin says, “your mind concludes that there must be a good process going on.”

So when a fund puts up good numbers, you will naturally be inclined to think it has a sustainable edge.”


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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • whatisgoingon

    My problem with investing is that I tend to think I’m just unlucky (or maybe that should be unskilled).

  • Cowpoke

    “True luck consists not in holding the best of the cards at the table; luckiest is he who knows just when to rise and go home.”

    John Hay

  • brazzo

    Brilliant Unlucky people like me, hang in there!

  • JimmyC

    The only thing I know about Mauboussin is that he was crushed -along with his clients- in 2008.

  • Conventional Wisdumb

    Actually I believe there is no contradiction in being a brilliantly lucky person.

    I am never one to ascribe to the conventional ;)