jammy dodger?
How many times have you overheard a conversation between two people arguing about whether the outcome of an event was down to luck or skill?
No one ever really likes to be called 'lucky'. Where I am from (Liverpool), you would get called 'jammy', 'flukey' or sometimes even worse. Ultimately, we like to think that our success is always down to skill or hard work and hardly ever subscribe to luck being in the equation.
Recently Joe Wiggins produced an excellent piece talking about this very subject referencing how skill can be an emotive term and stressing the importance of understanding odds/probabilities in investing. It is an important topic which many have written about including Michael Mauboussin (if you havent read 'The Success Equation' or anything on the Paradox of Skill, you should) and Annie Duke ('Thinking in Bets' is another pre-requisite on the reading list).
There is a scale of where different games would fall between luck and skill. For example, you would say there was a difference between chess and poker. Chess is a game that relies more on skill than a hand of poker.
The quick way to untangle this when thinking about an activity is to consider:
1. If you played a player with more experience 100 times, how many times would you expect to win? If the answer is low then the game requires a lot of skill.
2. Can you lose the game on purpose? There is no way you can lose the lottery on purpose but you definitely can lose a game of chess on purpose. The greater the probability of losing the game on purpose - the more the skill involved.
When bringing this into the sphere of investment, it is important to understand how much luck is involved. A lot of times you will hear a fund manager claiming a lot of skill when it might actually be a fair tailwind of luck from things like market beta, style or macro factors.
There is also a human element here. A lot of the time it is nice to be lucky and one should embrace it. For example, I know I have been unbelievably lucky in my career. I have had great bosses at just the right time. I have been in the right place to be able to express myself and work with amazing people on interesting ideas. I have been in the right organisation (Investec) that has allowed me to be myself and bring the best version of myself to work. I will be leaving the business at the end of June this year to pursue new and exciting opportunities and hopefully continue to be lucky.
