Thursday, March 15, 2007
Success, Luck, and Survivorship Bias
Certainly there are some very skilled people on that list, people who have created a great deal of value for society and their personal fortunes are a small fraction of that value creation. However, I'm starting to think that there is a lot of survivorship bias as well. Certain people were merely lucky and have accumulated vast amounts of money as a result. I starting thinking about exactly what made these individuals lucky. I think there is a two-part answer. First, the individual geniunely took a big risk and lightning struck. Then, success became a self-fulfilling prophesy as that person's deal-flow improved dramatically. With a solid financial backing, the individuals could afford to wait for the perfect deal. It's like having the bases loaded, a 3-0 count, and Barry Bonds batting behind you -- you sit and wait for a pitch you know you can hammer out of the park.
I think the lessons are:
- Without great risk, there can be no great reward.
- Maximize your opportunity-flow.
- Patience is a good thing.
- Don't be fooled into thinking all successful people are skillful.
- Rich Aurilia really wasn't that good of a baseball player at all!