Skill vs. Luck

One-line definition: The continuum every activity sits on — from pure skill/no luck (a footrace) to no skill/pure luck (a roulette wheel) — and the project of figuring out where investing falls on it.

How sources describe it

• “We need to understand where an activity falls on a continuum from pure skill/no luck on one extreme to no skill/pure luck on the other… running races are nearly all skill… and roulette wheels are all luck. Everything else is somewhere between.” — Michael Mauboussin, Untangling Skill and Luck.
• “We have a strong tendency to dwell on outcomes without considering the role of process… We need to find performance measures that reflect skill, or elements of the outcome that we can control.” — Michael Mauboussin.
• “Too often, we mistake luck for success and perfect circumstances for personal competence… many extraordinarily successful people… are just downright lucky… So the key is to position yourself in a way to maximize your luck.” — Josh Wolfe, via What Is An Investor - Research.
• Kyle’s framing: a public stock-picker and a card counter have more in common (skill end); a day trader and a craps shooter are similar (luck end). The more exposed you are to luck, some argue, the less of an “investor” you are — but strategy and outcomes shouldn’t be conflated. (see What Is An Investor)

Where it shows up

• What Is An Investor - Research — the May 2022 Kevin Gao conversation and the Mauboussin/Wolfe reading notes.
• What Is An Investor — “Luck vs. Skill” and “Don’t Make It Personal” sections.

Related concepts

• Knightian Uncertainty — high uncertainty leaves more room for skill to create an edge.
• The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing — Michael Mauboussin’s book-length treatment of the skill/luck continuum cited throughout this page.
• Michael Mauboussin — source of the continuum framing and the call to find process-based, controllable performance measures.
• Josh Wolfe — argues much success is luck, so the move is to “position yourself to maximize your luck.”
• Kevin Gao — the May 2022 conversation in which Kyle worked out where investing falls on the continuum.
• What Is An Investor — Kyle’s essay, whose “Luck vs. Skill” and “Don’t Make It Personal” sections apply this distinction.
• What Is An Investor - Research — research notes feeding the essay, gathering the Mauboussin/Wolfe reading and the Gao conversation.