Luck vs. Skill? Random Thoughts on Randomness
It’s been a while since my last blog post. They did not lie about making “full-time” in the title of the MBA program that I am taking. It is Full-Time, plus more. Now that we are starting internship a little over a month ago, and the summer seems to come through in the Scandinavian city, I’ve got some breathing space and therefore decided to prioritize a post on my agenda, writing while bathing in the sun in a cafe sipping on ice latte.
This is not an achievement round-up post. That could be another one, if there will ever be one. This is a post dedicated to the book that I have recently finished, Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets by Nassim Nicholas Taleb.
You need to know Nassim Nicholas Taleb. Wharton MBA and PhD from University of Paris, Taleb would most likely scorn at the idea that credentials speak for ability. He is the author of many other amazing books, including The Black Swan, Antifragile, and Skin in the Game.
I will not repeat his life story here but you should check it out. In my opinion, he is the true thinker who deeply contemplates randomness, probability, and uncertainty.
“I will repeat this point until I get hoarse: a mistake is not something to be determined after the fact, but in the light of the information until that point”
I completely agree with the statement. I always feel uncomfortable in situations where people scorn others because of an immediate failure. The quality of decisions need to be evaluated based on the information available at the time they were made, rather than judged solely in hindsight. However this is challenging, and education (at least to the extent that I have) has failed to identify and teach the appropriate methodology to evaluate decisions at the time. This is not to say that education is disappointment; it is simply that no parallel universe exists to testify alternative lives. Thus, we are taught to find correlation, and hopefully to uncover causation.
A few years ago, I decided to invest in a few stocks after conducting thorough research on each company. One of the stocks I chose was a technology company that showed promising growth potential. The market sentiment was positive, and the company's financials seemed solid. I analyzed various reports, studied industry trends, and consulted with financial advisors to make an informed decision. Based on the available information, I believed it was a sound investment opportunity. However, around the same time, I also invested in a couple of other stocks based on similar research and analysis. Unfortunately, those investments did not perform as expected. The stock prices either remained stagnant or declined.
Reflecting on this experience, it's important to consider the distinction between luck and skill in investing. While the technology stock I chose took off and yielded substantial returns, the other stocks did not fare as well. Would the outcome be a testimony of my ability to invest and pick stocks, or it is nothing better than throwing darts in the dark like a chimp? Randomness got mixed up in there and it is important not to be fooled into believing one way or the other.
Therefore, I believe it is important to put much more thoughts into the rigorousness of the decision-making processes, than the immediate correlation of events. If you win a big contract when you wear pink, I think it is more logical and rational to examine the way that things were handled than to believe it was the pink. Rather than reducing the outcomes to mere luck or skill, it is crucial to continuously learn, adapt, and refine strategies and improve our ability to make the right decisions given the information at the time.
You might ask, but how do I know if the decision is right or wrong, if not judging from the hindsight? You might agree with me or not, but one question that I always ask myself after the fact is that, what decision would I make if I had the chance to choose all over again? Knowing the outcome and regardless of the outcome, would I still make the same decision? Not all failure means bad decisions, because there could be other important lessons to pick up along the way; equally not all successes are good choices, because people might miss the serendipity that could lead to a totally different versions of life. But reflecting on the processes and the respective choices in nature, to me, shed lights on the quality or righteousness of decisions.
“Heroes are heroes because they are heroic in behavior, not because they won or lost.”
