To be lucky or not to be lucky (The Financial Athlete #26)

Luck is part of the game. Sometimes even winning a game is a matter of luck. In soccer tournaments when a tie score will not do, the game is decided by penalty kicks. In this situation the goalie makes a snap decision of where the kicker will kick the ball. The ball may go right and the goalie jump left to try to block it (or vice versa). This is what guesswork looks like in sports.

Luck has its place in investing, too. To the investor who loses, it quickly becomes obvious in his mind he has been unlucky. More likely, he didn’t know what he was doing when he invested. As for the lucky investor, he does not thank his lucky stars because he is very slow to realize luck played a large role in his new found fortune. It comforts his ego to think he is gifted with money, until his luck turns sour.

Investing is a game of probability. An investor must be objective in assessing probability of outcomes. Only when he reasonably estimates the probability of favorable outcomes far outweigh the probability of negative ones should he take a substantial position, and even then it should be measured so that if he is dead wrong he is not finished.

“Sometimes when you do your job, the ball just comes to you.” – Ray Lewis
(on a fooball teammate’s interception)


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