Randomness and LuckSubmitted by Majerko Investment Management LLC on July 28th, 2017
I recently read an interesting book entitled “Fooled by Randomness” written by Nassim Nicholas Taleb. It basically postulates that randomness or luck plays a bigger part in investing – not to mention in life– than most people realize. It is something that I’ve personally experienced over the years. In the short run, a big part of investment success can be the result of being in the right place at the right time. We all know that when things go right, luck looks like skill and vice versa but that is not necessarily the case. Bad or highly risky decisions are often rewarded by the market—especially in the short run—and well thought out decisions are often punished due to random events. I’ve seen many people who took undue risks and were right become “geniuses”—never to be heard from again because the true determinant of skill is judged by consistency over time. So what do we as investors do knowing that randomness or luck plays a factor in successful investing with the future being, by definition, unknowable? We put together diversified portfolios i.e. (not putting all our eggs in one basket) to try to weather any negative random events that may happen.
Oh, and wish for good luck!
Cordially, Terrence Majerko
*Disclosure: The opinions voiced in this material are for general information only and are not intended to provide specific advice for an individual. Investing involves risk including loss of principal. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
*Past performance is not a guarantee of future results