Lucky You
Luck has intrigued me ever since I have encountered situations where luck seemed to have had a hand in my successes and failures. People commonly attribute their successes and failures to luck, yet I struggle to comprehend the intangible nature of luck. In 2014, Howard Mark famously wrote a memo to his clients at Oaktree Capital which highlighted how it was no secret luck played a huge role in his successes and how we’re inclined to distance ourselves from luck because we want to believe that our success was earned. As a young boy growing up in Singapore’s competitive academic system, weekends were packed with ‘enrichment' classes (additional tutoring) and school holidays were not actual breaks from school but the ‘perfect’ time to catch up to your peers in preparation for the next school semester. Rooted in strong Confucian principles, meritocracy was etched in the minds of every Singaporean child as the blueprint for success.
HARD WORK + EDUCATION + APTITUDE = SUCCESS
We were programmed to take luck out of the equation! But this was deliberate, and not without good grounds. If luck was given too much credit for success, it’s safe to assume that many will be quick to attribute their failures to bad luck, or worse, just sit around and hope for good luck. This particular approach could potentially lead to a culture of complacency and lack of personal responsibility. On the flip side, Howard correctly points out that completely disregarding the element of luck can also be problematic.
I- along with Smith - believe a great many things contribute to success. Some are our own doing, while many others are beyond our control. There's no doubt that hard work, planning and persistence are essential for repeated success. These are among the contributors that Twitter's Dorsey is talking about. But even the hardest workers and best decision makers among us will fail to succeed consistently without luck.
Howard Marks, Oaktree Capital, “Getting Lucky”
Howard also breaks down how luck manifests itself in reality, detailing how he was a beneficiary of good fortune right from the time he was born to the series of events that led him to found Oaktree - demographic luck, he calls it. In our respective lives, most of us enjoy some degree of 'demographic luck.' Perhaps we were born into a loving family, in a safe neighbourhood or wealthy nation. We could have received a quality education, which equipped us to seize opportunities that came our way. All these factors, over which we have no control, shape our lives to a significant extent and are instrumental in our life outcomes. There is no denying that hard work, dedication, and perseverance are crucial to making the most of our 'luck' but the dice rolls of birth and circumstance undeniably play their own parts. Coming back full circle on my experience growing up in Singapore, there was a stark contrast between a family with the means to provide their child with individual tutoring, another who could only afford group sessions and many others who could not afford any enrichment classes. While all the students are participating in the same race, it’s reasonable to imagine that their starting points differ vastly.
Moreover, we often overlook the role of luck because our brains are wired as such…
We have a hard time recognising the role of luck in our success because, aside from the need to placate our egos, there are several cognitive biases impeding us…
Ibrahim Zaghw, Finmasters
Hindsight bias (the tendency to look back at an event that we could not predict at the time and think the outcome was easily predictable) or Survivorship bias (when we focus on individuals, groups, or cases that have passed some sort of selection process while ignoring those who did not). On average, 90% of startups in America fail but nobody wants to hear about them. This means there are plenty of talented, hardworking individuals who, despite their efforts, end up not reaching their potential due to circumstances beyond their control and we may never learn their stories. This is where luck or, more specifically, the lack of it could have played a significant role.
Therefore the correctness of a decision can’t be judged from the outcome. Because of the randomness at work in the world and the unpredictability of the future...
Howard Marks, Oaktree Capital, “Getting Lucky”
This perspective was brought to the fore in 2020/21 when excessive amounts of QE (Quantitative Easing) flooded the stock market with cheap capital. Distressed companies like Hertz, GameStop, AMC were making multiples and turning dimes into dollars overnight. Coupled with the compounding effect of social media, #Degens (degenerates) literally broke the market with r/WSB and #FinTwit sending shockwaves throughout Wall Street after the collapse of Melvin Capital. It was #UpOnly or #diamondhands that sent retail investors into a frenzy. The chaos caught up to me as well as I dove headfirst into the wave of speculative trading investing. I invested in Bitcoin based on the expectation that, due to US Federal Reserve printing money, inflation was imminent. Investing in scarce assets, like Bitcoin, seemed a sure way to benefit. The results were spectacular. My $5,000 investment grew to a hefty 6-figure portfolio and it was in these moments of euphoria that really clouded my judgement as I attributed my ‘success’ solely to superior foresight and investment thesis.
When the dust finally settled, it was quite clear - we were right for the wrong reasons a.k.a LUCKY. Bitcoin was not a hedge for inflation but instead, a ‘risk-on’ asset riding the wave of cheap liquidity, just like Hertz, AMC and many more that eventually retraced to their ‘fair values’.
Having addressed why we cannot ignore luck and its significance, I would like to dig deeper to understand why luck is such a controversial and contentious concept.
Micheal Sauder's paper, "A Sociology of Luck" discusses the elusive nature of luck within the field of Sociology and points out that acknowledging luck as a real phenomenon is commonly viewed as antithetical to a sociological approach to understanding the world but a step in the right direction. The more challenging task comes after - framing and isolating its effects. Luck is highly subjective and thus hard to measure both qualitatively and quantitatively.
Some definitions of luck include:
Dictionary definition
A force that brings good fortune or adversity
Sociologist’s definition
Sauder: A lucky event or occurrence as one that involves chance, is consequential (either beneficial or harmful), and is at least partially outside the control of the person or people affected by it. One key implication of this definition is that it treats luck as a “real” social phenomenon
University of California Berkeley (four components):
it involves chance, in the particular senses of unpredictable and outside the control of the individual;
it is unlikely;
it has a substantial impact on the individual;
it is an event that happens at a particular time (rather than an ongoing "state of affairs"
Psychologist’s definition:
Prichard/Smith:
If an outcome is lucky, then it is an outcome that is significant to the agent concerned
If an outcome is lucky then it is an outcome which occurs in the actual world but does not occur in most of the nearest possible worlds to the actual world
Philosopher's definition:
Thomas Nagel (two components):
Chance and importance. When an event or outcome is beyond our control but has a significant impact on our lives, we consider it luck
This list is not exhaustive and certainly not conclusive. As it turns out, the variability in which we define luck depends on a myriad of factors: Gender, socioeconomic status, race, geography, religious beliefs and internal perception of control, (Lough, 2022). Moreover, the perception of luck tends to evolve over time as our experiences, beliefs, and values shift. This fluidity in the concept of luck makes it challenging to pin down a universally accepted definition or understanding. Context or framing is important and often involves how we define what’s within the actor’s control or how deserving they are of their success/failure.
The authors (Merton & Barber) documented the tendency in these debates to see good luck as enhancing reputation if the person is seen as deserving, and as damaging reputation if the person is deemed undeserving. These divisions not only help us see what is at stake in debates over the role luck plays in achievement but also how individual characteristics might shape the conclusions we draw from a person who experiences good or bad luck.
Michael Sauders, University of Iowa, “A Sociology of Luck”
The effects of luck are also incredibly difficult to measure and isolate due to the multitudes of variables at play.
It is challenging to provide direct evidence of these differential effects of luck. Ethnographic work is suggestive, but it cannot offer the sort of direct comparisons or counterfactuals that would firmly establish the existence and extent of these effects, (Sauders, 2020)
Taken together, these complexities surrounding the concept of luck serve to underscore its importance in our understanding of achievement, success, and merit. They also raise important questions about the role and value of effort, agency, and skill in a world that is also deeply marked by chance and contingency.
I would like to wrap up by sharing Howard’s account on Buffet (& Obama’s Speech):
“Buffett is insightful enough to realize - and secure enough to admit - that he isn't solely responsible for his success. What if he'd been born in Bangladesh instead of the U.S.? Or a woman rather than a man in 1930, having much fewer opportunities? Or in 1830 (when there would be no hedge fund industry for a century) or 2014 (when there are smart people crawling all over it)? Or to different parents? Or if he'd missed out on studying under Ben Graham at Columbia? Or if he hadn't partnered with Charlie Munger?”
"If you've got a business - you didn't build that alone. Somebody else provided assistance that made that happen.” - Barrack Obama
Lessons from Luck
The humility in acknowledging luck's role in our achievements could lead to a more equitable society. By recognising the silent hand of fortune in our lives, we could develop greater empathy for those who are less fortunate and extend support to them.
Embrace Uncertainty
Luck, by its nature, involves uncertainty. Our desire for certainty often blinds us to the role of luck and chance in our lives. By acknowledging and embracing uncertainty, we can strike a balance between skill and luck, and develop a more nuanced understanding of our personal and professional achievements.
Luck and entrepreneurship can be likened to a game of poker. We are all dealt different hands, and while we have no control over the resources we are given, it is our ability to utilise them effectively that ultimately determines our success:
Do you continue playing the round with the cards you have?
How are you going to extract the most value from the hands you have?
How will you adapt your strategies based on the hands that others have?
Are you willing to take calculated risks and make a bluff if needed?
Can you assess and reassess your position objectively and shift strategies when required?
The luck factor will always be present, but recognising and effectively responding to it can potentially make a significant difference. While acknowledging luck's role in our successes, it's important to not undermine the role of hard work and skill. The “luck vs skill” debate is undoubtedly nuanced. You can have all the luck in the world, but without the skills, persistence, and efforts to seize opportunities and overcome challenges, that luck isn't worth much.
Food for Thought
Given a choice, would you prefer to be incredibly lucky or incredibly skillful?
To what extent do you (willingly) credit your accomplishments or mistakes to luck?
REFERENCES
Lough, B. J. (2022). Do Founders Attribute Their Success To Skill or Luck?.. https://doi.org/10.21203/rs.3.rs-1600770/v1
Marks, H. (2014) ‘Getting Lucky’
Pritchard, D. and Smith, M. (2004) ‘The psychology and philosophy of luck’, New Ideas in Psychology, 22(1), pp. 1–28. doi:10.1016/j.newideapsych.2004.03.001
Sauder, Michael. 2020. “A Sociology of Luck.” Sociological Theory 38 (3): 193–216
Zaghw, I. (2023) The role of luck in financial success: Why it matters more than you think, FinMasters. Available at: https://finmasters.com/luck-financial-success/ (Accessed: 06 July 2023).
