I recently finished reading Outliers by Malcom Gladwell. Outlier means extreme outcomes in simple sense. What are the factors which lead to extreme success (being a relative term). I think its a combination of factors which lead to lollapalooza outcomes (extreme outcomes as per Charlie Munger) . Yes persistence (10,000 rule, you need to work 10,000 hours to be called an expert in one field- Malcom Gladwell), practical intelligence, hard work and IQ (which is irrelevant after 120 as per Malcom Gladwell), all are very important factors but there is also one factor which is always under-appreciated.
Luck – Any successful person needs lots and lots of luck. If you were born when computers were not famous yet you had the skills along with money to work on computers which were due to luck and when computers became famous, you got an opportunity.
What generally happens is outliers generally start with an obscure field, work in that which no one considers right, then if in their lifetime opportunity comes they strike it. It all depends on when you are born, where are you are born, when do you start working, etc.
Sometimes luck only is the reason for success. You can read more about randomness/luck in ‘Fooled by randomness’ by Nassim Nicholas Taleb .
Most rag to riches stories come here.
This does not mean these people don’t have other skills or they don’t work hard, they prepare become world class experts and strike when the opportunity arises. The opportunity part depends on lots and lots of luck.
What if Jeff Bezos was born when there were no computers, Amazon wouldn’t exist. As he himself rightfully says someone laid the internet infrastructure and he capitalised on that.Similarly there are endless examples.
In an uncertain environment like investing luck has a lot of role to play in the success or failure of an investor. Those who don’t appreciate luck after being successful are either lying or are not wise enough to realise the importance of luck in their life. It does not mean other skills aren’t necessary.
Instead of following the returns of successful investors it is always useful to know the process/ thoughts of an investor. There may be many unknown investors with excellent processes.
As we all suffer from first conclusion bias, most of the times we link financial success with intelligence and financial failure with mistakes of the person (we rationalise). We do not empathise with failures (neither the stock market does). Under these failures may be a learning machine or under these successes may be a company which seems temporary successful.
Achal Bakeri from Symphony, is pure example of a learning machine. More can be learnt about him from Prof Sanjay Bakshi’s Blog.
In fact most of the turnaround situations in the stock market are unappreciated by the market for longer periods of time. Whenever you see a successful person try to learn about his/her process rather than his wealth. Don’t assume his/her success automatically ensures he will be right. It is even more important to learn from failed examples and figure out what were the rightful cause for the same.