Have You Heard About the Skill Paradox in Investing?

This paradox actually ties into both gambling and investing, but I’ll focus on investing here. When you’re trading or putting your money into assets, you often run into more luck than actual skill improvement, right? Patience, humility, and having a good approach matter a lot. But you can only master this over time with dedication, discipline, and consistency. I’d love to hear your thoughts on this!

In investing, skill plays the most role, but luck is needed for success. In investing, luck favors those who are more diligent, patient and skilled. In trading, the matter should be looked at differently. Because in trading, skill controls luck, but luck is very important for winning. Even with hard work, patience and skill, you will have to lose in trading. But if you acquire skill in investing, the chances of failure are very low, unless natural disasters happen against you.

It is not all the time that luck plays a role when you compete with people that are equally skilled. Sometimes, one person just works harder or smarter than the other or has more resources than the other. Luck plays a role but its not everytime. I agree with him to an extent because of the point he emphasised. Luck works more like that in the short term. When two people competing are equally skilled, one might be luckier than the other and win, but that won't be able to sustain that person for the long term. In the long term, skill is what sustains you. In football, a team can get lucky to win a match, but its skill that they need to be at the top for a long time. From time to time, they may get lucky or unlucky, but if they don't have the skill, in the long term, they wont win much.

It is a bit tweaky if I want to be candid I will say luck should be attributed to anything that has to with gambling.. but then again sometime skill matters when it come to gambling the uncertainty there is high and you only predict the outcome but anything could hinder your prediction. Investment on the other hand  has to do with skill consistency and hard work  and understanding the pathway which you are working with. that doesn’t work with gambling it’s all about luck when it come to gambling

Sometimes it not only about how skillful we appear or the investment strategy we used, but being lucky of entering into it the right time, we can have a personal developed strategy on trading it investment, but things may not really work if we are not in perfect agreement and understanding to what is needed to do at a particular time, also, when we are not being disciplined, it will be as if we are gambling because of the risk that may be associated in it, which may cause more of losses to us than being in profit when we invest or trade.

The most important point in this is that when your skills are accompanied by courage, it will produce luck that you will not be able to predict the results, most people who have the skills do not have the courage needed so there is no significant luck, this can be calculated in this paradox. RICH = RISK is how it can be formulated or reversed, you have to be crazy enough to achieve a fortune that you consider it a success.

This is the first time I have heard of this. This may be a good read. I would be adding it to my To Read List. I'm curious if there is quantitative evidence for this? Like statistical data to see how much it really affects it, or it's just between the feeling of the person's feelings. I do not support it as a feeling, but it isn't very objective in the way it leans. I think other books could help or fall within this skill, like Thinking, Fast and Slow by Daniel Kahneman.

I will not downplay the importance of skill in investing but skill is not all that will make you a success, luck play a big role. There were people that invested in companies that were down but by luck they picked up and their shares skyrocketed and made them nillionaires. This has happened in many instances and by skill such company will never pass the criteria of selection for investing but instinct(luck) made some people chose them and are rewarded handsomely.  I'm not saying that it is better to rely on instincts but we cannot rule out the role such things play in our daily lives.

In the space of investment, where everyone is skilled on investment, luck doesn't prove the winner, it's possible that everyone can win if they adopt a very method that will make them be profitable. If for example 10 workers in a company agreed and invest on Bitcoin and hold for the same period of time, they are all going to make equal profit, but if one of them don't have the Bitcoin intelligence that others has, he might sell his own Bitcoin if he sees small profit meanwhile he didn't know that others are still holding. In the space of skill, if everyone is truly proficient on the skill, luck could help one or two person to win more than the others like you said, but one thing is personal charm which give you the ability to persuade, have a good character and manner of approach and also to arouse admiration to yourself in respect to your skill. Maybe it's such charm that stands as luck.

No one really knows what is going to happen in the future, whether it's Warren Buffett or Elon Musk, they all do what they can and rest is not in their hands. But one can be successful or buy that luck by being patient, because the chances of assets that you picked after thinking that it got a potential in the long term will be atleast 50%. That is how every kind of investment works so even if most of your assets are failed the remaining succesful ones can cover the loss of others and still make you profitable.

Thousands of repetitions sounds great, but most do not get thousands of chances. When everybody gets good, luck comes - fine. But Mauboussin's talking about closed systems. Investing isn't that. Investing isn't a closed system. Different participants have different information at different times. Some people's "luck" is really just access. Better data feeds. Faster execution. Insider networks that aren't technically illegal, but definitely aren't open to retail traders sitting at home. When we refer to that as luck, we're being dishonest about what's going on. The skill ceiling had gone up for everyone. But the resource floor remained wildly uneven. And the process thing? Good process helps but can't account for everything. You can have perfect process and and get wrecked by things outside your model. 2008 happened to people with great processes. COVID put a hole in those businesses that did everything right. Focusing on process is good advice but it's not some sure thing. It's risk management, not certainty. There's a difference. What really matters is whether you can survive the variance long enough for process to matter. Do you have enough buffer to eat shit over and over again and never go broke? How much you can lose without being forced out? Mauboussin's right that process beats outcome, except when your process involves making it through three years of drawdown and you've got maybe eight months of runway. Then outcome is everything that matters. Everyone else is wiped out by variance before their process proves anything.

Lots of people still have the mindset that investing is like throwing money on to a roulette wheel and it can be, if you're bad at it or don't have a decent plan in place. However if you spend just a little bit of time in this space and really learn how it all works, then you take a lot of risk out of the equation. It's not as simple as taking a thousand bucks and throwing it at some tip that you've received from your cousins girlfriends best friends barber. That so rarely works that you'd probably have more success just buying a raffle ticket instead. Instead you just pick out a strategy that works for you - hands off index funds, investing in heavy growth sectors (like AI at the moment) or sticking with medium/large steady companies that pay out dividends are just a few strategies.You cannot expect to get rich from one off lumps of money though, real investors keep adding over a long time before reaching true success.

This is very true, which is why trading is not a short term shtick and you have to do it over long term to be able to get the results that you want. People hate it when they make only 20% return a year, because that looks like a bad deal. But let me put it this way, if you have 1000 dollars today, and put 50 dollars a month into that account and have a 20% return, for 20 years, you will end up with 200k dollars. You invested literally just a thousand dollars, and only 50 dollars a month for it. Imagine if you did that with 10k today, and 100 dollars a month? 840k. Consistency is the key, but yearly it will look small.

That's one way to say that there's no way for everyone to win in capitalism, because power dynamics need to be asymmetrical in order for there be any "rich" people at all to take advantage of their richness. Some people with lot of money tend to believe that they are just more skilled then others, and they don't see element of luck at all, because they see luck taking away their credit for it. Rich friends of mine luckily are just empathic and grateful, even if they had worked a lot for their wealth. As they see how big part their circumstances played a part on their success.

Luck is not something I really do lay emphasis on as it regards trading, I do not seel the luck idea with trading a.d investment and that is because these are skill based and you need to put in the work, to the best of my knowledge, skill based things are usually not often dependent on luck neither are they expected to be carried out haphazardly, you can not be random with trading and investment and get as lucky as you would if you are applying same to and with gambling.  It is always best and most profitable if you are trading or gambling based off your skill set, that way you define your activities enough that if there be any issues related, you will definitely know where to make corrections with your skill set but it is quite different with gambling, in all I believe so well that luck has a very low stake with trading and investing than it does with gambling, evidently the frequency of occurrence of luck in gambling is mostly higher and bigger than that we see with trading and investing because they are fsr more skill based.

Definitely agree with you, nobody can actually say that there isn’t luck in everything we are doing, in fact we all can say that it’s a luck we did wake up today, but to be honest I also think luck isn’t a thing so much associated with trading or investment except of its done on a pump and dump asset or coin. For example bitcoin base on analysis is to actually be bearish next year according to historical trends, you cannot simply be saying it’s a luck when we actually see the market dumping that next year and the analyst gets to accumulate more, yes there is uncertainty on every prediction market but that doesn’t mean everything is a luck. For trading someone can set a buy or sell option at a certain price point and if he gets triggers and runs to its profit some could associate that with been luck but it is not it.

It's always a race of skills. Those who are able to rise above the rest will come out victorious. I believe luck plays a minor role. Yeah, it's process over outcome, but it's still all about outcome in the end. It's the long game that matters. Short-term outcomes aren't indicators of long-term success. In a way, it's like Bitcoin investors. Those who have developed diamond hands, those who have seen the wider picture, don't care much about short-term fluctuations and the gains of those who are taking advantage of them. In a market where everybody is trying to be the strongest hodler, those who last win.

Investment is basically just very low frequency trading, and since you described trading generally as a skill, i have some arguments against it. Imho skill in trading is something we just have chosen to believe in. TA is based on probability. It's a field that assumes we can apply probability statistics on literally any isolated data, to make profit from it. Even if that data (which can be interpreted and measured with countless indicators, that can contradict each other) would seemingly work, any sudden changes can change your months of winnings to losses in a day. I see similarities with gambler's fallacy and people who bet on low odds, only to get their winning streak cut by one loss at some point. Psychologically it's easy to understand why we want to take credit for our all of our success, and not give it to "luck". That's because we have worked a lot for it, and for that work it's necessary to be proud of our selves and our choices. But somehow we start to believe in luck playing a part when everything crashes, and rather taking responsibility of our investment choices, we blame bad luck. In 1999 "Raven", a five-year-old chimpanzee chose stocks by throwing darts at a dartboard, that had a list 133 internet companies. That chimpanzee got 365.4% returns in that year for those random dart picks, beating over 6 thousand professional wall street brokers. Sure, that monkey lost everything later on, but so did many others, as Nasdaq crashed nearly -70% in 2000-2002.

More than luck, it is also your ability to make and maintain connections. Connections lead us to opportunities and this allows us to grow. Some people are skilled but due to lack of connections, they end up without any opportunities to show their skills and even have a place to improve more of these skills. It is often seen as a privilege that these people sometimes have connections due to familial ties.

We do not have any control on luck and that is something that plays its role by itself at its own time. Rest all of it depends on how skilled we are in the bet we are placing. It is obvious that if the other person is more skilled than us then he will definitely win the bet and vice versa. Focusing on improving the skills is the only thing that will give us the leverage to win the bet.