Ever Heard Of The Paradox of Skill In Investing?

[Cryptomultiplier]

‎This paradox can be related to both gambling activities and investment but for better emphasis, I am going to dwell on investment because when it comes to trading and investing, we would have to encounter more luck as compared to our skill growth and perfection, with patience, humility and a nack for the right process.
‎This however is learnt with time commitment, discipline and consistency.
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‎The more evenly matched opponents are in skill, the more of a role luck plays in determining the final outcome.
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‎If everyone is skillful, then luck plays a role in winning.
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‎Popularized by Michael Mauboussin in his book The Success Equation, the Paradox of Skill is the idea that as everyone in a field becomes more skilled, the role of luck actually increases.
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‎If you are playing in a high-skill environment, you have to accept that variance (luck) will dominate the short term. To combat this, Mauboussin suggests focusing on process over outcome. If you have a good process, your skill will eventually win out over thousands of repetitions, but you might lose the next ten times simply because everyone else is also "good."
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‎https://www.safalniveshak.com/investing-and-the-paradox-of-skill/?

Your opinion is welcomed!

[Shadiq]

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.

[Alpha Marine]

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.

As people become more skillful, luck becomes more important. That’s precisely what happens in the world of investing. In the short term, you may experience good or bad luck [and that can overwhelm skill], but in the long term luck tends to even out and skill determines results.

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.

[Livingleged]

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

[348Judah]

‎This paradox can be related to both gambling activities and investment but for better emphasis, I am going to dwell on investment because when it comes to trading and investing, we would have to encounter more luck as compared to our skill growth and perfection, with patience, humility and a nack for the right process.
‎This however is learnt with time commitment, discipline and consistency.
‎

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.

[bangjoe]

‎This paradox can be related to both gambling activities and investment but for better emphasis, I am going to dwell on investment because when it comes to trading and investing, we would have to encounter more luck as compared to our skill growth and perfection, with patience, humility and a nack for the right process.
‎This however is learnt with time commitment, discipline and consistency.
‎
‎

‎The more evenly matched opponents are in skill, the more of a role luck plays in determining the final outcome.
‎
‎If everyone is skillful, then luck plays a role in winning.
‎
‎Popularized by Michael Mauboussin in his book The Success Equation, the Paradox of Skill is the idea that as everyone in a field becomes more skilled, the role of luck actually increases.
‎
‎If you are playing in a high-skill environment, you have to accept that variance (luck) will dominate the short term. To combat this, Mauboussin suggests focusing on process over outcome. If you have a good process, your skill will eventually win out over thousands of repetitions, but you might lose the next ten times simply because everyone else is also "good."
‎
‎

‎https://www.safalniveshak.com/investing-and-the-paradox-of-skill/?

Your opinion is welcomed!

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.

[crwth]

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.

[Odohu]

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.

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.

[Mrbluntzy]

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.

[Findingnemo]

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.

[slapper]

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.

[Fortify]

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.