What role does luck play in investment success?
What do you need to do to be a successful investor? Have a thorough grounding in the language of finance? A decent knowledge of the FTSE 100 and the performance of key markets? An appreciation of the different types of investments?
While the answer is probably yes to all of the above, how about a bit of luck? What role does chance play in the process?
The way in which luck plays a role
Oxford professor Danny Dorling recently wrote about the attitudes of the super-wealthy.
He argued that people don’t want to admit that luck is actually a big factor in determining their success – preferring to believe that anyone could make their fortune if only they worked hard enough or had the talent needed to be able to succeed.
He asserts: “Those who make money are often not very talented at all. They were just lucky at the right points in their lives. They might have worked hard and often are driven and greedy, but thousands of others will have worked as hard as them, been just as greedy as them, and not consistently struck it lucky.”
This luck, according to Dorling, comes from a number of in-built advantages that give some people an unfair leg-up. He says that many people who make money had the fortune of inheriting a tidy sum from their parents and that being born male, white and rich greatly enhances the chances someone has of being successful.
He added: “The human world does not consist of just a few superior beings able enough to do the key things that need doing, and a lumpen mass of inferior beings who could never do these things and so should be penalised appropriately.”
The argument here, therefore, is that luck plays a big role in determining someone’s financial success and that the circumstances of their birth is a big part of that. For Dorling, ignoring this risks unfairly judging those who don’t have success.
More than just luck
But is it all a case of luck? Chance may play a role but – for Fortune Financial’s Lawrence Hamtil – there’s more to it than that. He subscribes to the old saying ‘luck is what happens when preparation meets opportunity’.
By that, he means that luck presents someone with an opportunity – but from there on it’s up to them to do the hard work needed to make the most of that opportunity. He feels that the advent of technology has helped to remove some of the barriers in the way of investors and argues that, in the end, focusing too much on chance is a way of people avoiding responsibility for the success of their investments.
He wrote: “The excuses we make to explain our poor results are becoming less and less plausible. In the final analysis, if we fail as investors, it will not be a lack of luck that caused it; we will have only ourselves to blame.”
Both writers make a compelling case and there’s much to take from both arguments here. No-one should overlook the role of luck and chance – investors have to be in the right place at the right time and are greatly helped in this regard if they are born into the right circumstances. However, luck needs to be combined with an individual’s skill and knowledge to make the recipe for success.
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