The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing

In most domains of life, skill and luck seem hopelessly entangled. Different levels of skill and varying degrees of good and bad luck are the realities that shape our lives—yet few of us are adept at accurately distinguishing between the two. Imagine what we could accomplish if we were able to tease out these two threads, examine them, and use the resulting knowledge to make … [ Read more ]

Michael J. Mauboussin

If you want to become world-class as a violinist or a chess player, areas where little luck is involved, you need roughly 10,000 hours of deliberate practice. What’s crucial is that your results, as you improve, will be a reliable indicator of your skill. as a result, feedback in these domains can be clear and unequivocal. If you compete in a field where luck plays … [ Read more ]

Michael J. Mauboussin, David K. Hurst

Michael J. Mauboussin offers this rough-and-ready test for discerning the difference between skill and luck in any given event: Ask yourself if you can lose on purpose. If you can, skill is involved; if you can’t, it’s pure luck. For a more mathematical assessment, figure out the correlation between a supposed cause and its effect. If the correlation is high, the cause is likely related … [ Read more ]

The Paradox of Skill: Why Greater Skill Leads to More Luck

Okay, you have gotten the memo on improving skill: 10,000 hours, hard work, deliberate practice, grit, and attentive teacher. We’ve all heard it. You also recognize that in many of life’s activities, the results you achieve combine skill and luck. No debate there. Now, what if I told you that in many cases improving skill leads to results that rely more on luck? That’s right. … [ Read more ]

Michael Mauboussin on the ‘Success Equation’

How do we know which of our successes and failures can be attributed to either skill or luck? That is the question that investment strategist Michael J. Mauboussin explores in his book The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing. Wharton management professor Adam M. Grant recently sat down with Mauboussin to talk about the paradox of skill, the conditions for … [ Read more ]

Think Twice: Harnessing the Power of Counterintuition

Leaders in all fields-business, medicine, law, government-make crucial decisions every day. The harsh truth is that they mismanage many of those choices, even though they have the right intentions. These blunders take a huge toll on leaders, their organizations, and the people they serve.

Why is it so hard to make sound decisions? We fall victim to simplified mental routines that prevent us from coping with … [ Read more ]

More Than You Know: Finding Financial Wisdom in Unconventional Places

Mauboussin is not your average Wall Street equity analyst, writing investment recommendations whose topical interest wanes a few days after the report is issued. His strategy reports begin with scientific findings from diverse fields, then show why an investor should care. This book is a collection of 30 short reports, revised and updated, covering animal behavior (“Guppy Love: The Role of Imitation in Markets”), psychology … [ Read more ]

Stress and Short-Termism (.pdf)

We always assume rationality of our market participants, but are they? Are you? One argument against this rationality is the way humans are “wired.” As a result of this wiring homo sapiens have developed a fight or flight response that while may serve us well in the event of physical danger, may be counter productive when facing financial risks. That is … [ Read more ]