Is it Luck or Is It Skill? (2024)

In most endeavors, there is a direct correlation between efforts and results. If you are smart and do the hard work, then you will produce positive results.

The stock market doesn't quite work that way. You can do endless research, study charts, and know every nuance of the fundamentals but still have a negative result. Traders and investors are ultimately trying to predict the future, and when someone tries to do that, then luck will be a major factor in determining the outcome.

Most market players underestimate the role of luck in their trading, and that is especially so when it is good luck. We are much more willing to attribute good results to skill and bad results to luck. But luck is an equal opportunity employer, and it cuts both ways.

It is a mistake to assume that good results are an indication that you have made good decisions. It is also a mistake to believe that bad results mean that you made poor decisions or done something wrong. The quality of your decision-making is not necessarily reflected in your results. The best traders in the world will often make a great decision but still have poor results.

A good analogy can be found in poker. In poker, you can execute perfect strategy and still end up a loser due to the way the cards may fall. You can also play a hand like a complete idiot and still win if Lady Luck is on your side. It is just the nature of any enterprise that deals with an uncertain future.

Although luck is an essential element of trading, most traders do not spend much time thinking about it, and they don't effectively incorporate it into their trading. Luck, both good and bad, is inevitable, and if you fail to appreciate that fact, your decision making will be suboptimal, and you will never grow and prosper as a trader.

The main problem when we have good luck is that it can lead to overconfidence and drive us to think that we can replicate a great outcome through sheer willpower. It is very easy to ignore the role of luck in a trade when we have spent countless hours contemplating it and thinking about it.

Overconfidence tends to produce bigger losses when the inevitable bad luck strikes again. We have been fooled into thinking we can always control the outcome when the reality is that luck is always lurking.

Picture two traders many years ago that are looking for a good stock to buy and hold. One buys Apple (AAPL) , and the other buy Enron. At the time, they both did extensive research, studied everything that was available, and felt confident that they made the right decision. One made a fortune while the other saw their stock go to zero. Was one of these investors more skillful than the other? To what degree was the outcome a function of just plain dumb luck?

That is a trick question because it ignores the power we have to manage a trade as it develops. That is how you deal with luck. You must recognize and find a way to manage the luck that occurs within the investing process.

How Do You Deal With Luck?

1. Don't underestimate the prevalence of luck. Every time that you enter a trade or investment, it is important to consider what can go right and what can go wrong but also it is important to understand that something completely unexpected may occur. There is always risk out there, and there is no way to eliminate it. It is going to hit you on a regular basis.

2. Make sure you have strategies that can handle a run of bad luck. One of the main reasons that it is important to use various forms of diversification is to make sure that a run of bad luck doesn't wipe you out. Your own defense against an ugly surprise is to not hold disproportionally large positions. That also means you won't benefit as much when good luck hits, so it is a constant battle to find the right balance.

Money management is essentially luck management. The idea is to find a methodology that limits the damage of bad luck while compounding the benefit of good luck. It requires constant vigilance, hard work, and good strategies and tactics.

3. Focus on the elements of trading that have the most real impact on results. In most cases, that will be money management rather than some big, bold prediction about the future. The only way you can improve as a trader is to separate out the luck component of trading and focus on the elements of your thinking that will have the most real impact on the results, such as timing, stop levels, news events, and so on. If you focus solely on results and don't dig in and dissect how luck played a part in each trade, then you won't really understand the quality of your trading process.

In addition to carefully analyzing the role of luck in your own trading, another way to improve your results is to study the trades of others. Unfortunately, traders have a tendency to brag, and they don't give us a true picture of what they are really doing. It is not like a poker table where information about decisions that others have made it easy to see. When you hear stories about a good or bad trade, evaluate how much of the outcome was due to skill or insight and how much was due to just a lucky confluence of events. That is the process that will help you improve your result.

Luck -- both good and bad -- is your constant companion in trading. The more you embrace it and understand it, the better your chances of producing superior returns.

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Is it Luck or Is It Skill? (2024)

FAQs

Is it Luck or Is It Skill? ›

Skill is the ability to fire knowledge readily in performance and execution. We know how to do something, and when the moment comes, we can do it. Luck has three specific features — it works for an individual and/or organization, it can be good or bad, and it's reasonable to expect something else could have happened.

Does success come from luck or skill? ›

Luck gives you success directly but hard work gives you success with a lot of experience , skills and sometimes failure lessons too . But the fight between luck and hard work doesn't finish with achievement of the goal , it also plays a crucial part in surviving in that position.

Who said luck is a part of skill? ›

Baltasar Gracian Quotes

It is a great piece of skill to know how to guide your luck even while waiting for it.

Is luck a real thing? ›

Luck Does Exist

The Cambridge English dictionary defines luck as 'the force that causes things, especially good things, to happen to you by chance and not as a result of your own efforts or abilities'. Many people believe that luck is something that you're naturally born with and is driven by a higher power.

Does luck matter in life? ›

What he found after years of investigation is that luck is completely a matter of how we choose to look at our lives. The people who consider themselves lucky are the ones who recognize their own good fortune wherever it happens and look at the world through that lens.

Why is skill better than luck? ›

Skill, defined as the ability to apply knowledge readily in execution or performance, can be improved through diligent practice, increasing chances of a desired outcome. On the other hand, luck is unpredictable and brought by chance.

Should we believe in luck or hard work? ›

So it can be concluded that luck and hard work are not opposites; rather, they are complementary to each other. So you should always work hard no matter how much your parents or astrologers tell you how lucky you are; always remember that without hard work, your luck will never be fruitful enough.

What did Einstein say about luck? ›

On a second sheet, he wrote, “Where there's a will, there's a way.” Einstein told the bellboy, according to the auction house, that if he was lucky, the notes might become more valuable than a regular tip. His words, befitting a man who had transformed our comprehension of the universe, were prophetic.

What is the paradox of luck and skill? ›

The key is this idea called the paradox of skill. As people become better at an activity, the difference between the best and the average and the best and the worst becomes much narrower. As people become more skillful, luck becomes more important.

What is the old saying about luck? ›

Luck is the idol of the idle.” “Luck is what happens when preparation meets opportunity.” “Luck is what you have left over after you give 100 percent.” “Luck never gives; it only lends.

Is luck just an illusion? ›

What opportunities you will develop, and which you will avoid. Each of these choices shapes what happens to you in your life. Each of those choices can create positive and negative events in your life...and you may call them "good luck" or "bad luck". But most of the time, the concept of luck is merely an illusion.

What are the three types of luck? ›

Here are more details about each kind of luck, and how it can affect your chances of professional success.
  • Chance I: Blind luck. ...
  • Chance II: Motion. ...
  • Chance III: Recognizing good fortune. ...
  • Chance IV: Directed motion.

Does science believe in luck? ›

According to scientists, the answer is yes. A London-based psychologist, Dr. Richard Wiseman has spent decades studying the phenomenon. In one experiment, Wiseman asked 400 people if they considered themselves lucky or unlucky.

Are people born talented or lucky? ›

You're born with it or without it, and supposedly you can neither gain it nor lose it. Talent isn't learned or developed; it's discovered by the lucky owner or by others who are observant. However, one needs both natural ability and hard work to become successful.

What are the signs of a lucky person? ›

The 4 traits lucky people have in common, according to author of 'The Luck Factor'
  • They leap at opportunities. Lucky people are not set on a fixed way of achieving their goals. ...
  • They listen to their intuition. ...
  • They are optimists. ...
  • They are resilient.
Dec 29, 2022

Why are some people so lucky? ›

They're lucky because of the mindset they bring to life. A mindset that accepts bad luck as inevitable but good luck as something we create by sheer hard work, bravery and optimism. As Martin Seligman, the founder of positive psychology once wrote, “Optimists endure the same storms in life as pessimists.

Is it more important to be lucky or talented? ›

In short, an admittedly oversimplified overview of the scientific evidence suggests that luck comes first, followed by talent, then effort. In other words, the more you control something, the less it matters. Then again, there's not much point in ruminating or stressing out about the stuff we cannot control.

Can luck lead to success? ›

This research shows that luck and chance do play a significant role in determining one's success, not just merit and talent.

How are skill and luck related? ›

SKILL = OBSERVERED OUTCOME – LUCK

The consequence of our effort, both good and bad, reflect an element without our control ( skill) and an element outside our control ( luck). In that sense, luck is residual. Skill is the ability to use one's knowledge effectively and readily in execution or performance.

Do billionaires have luck or hard work? ›

You can work hard and be a millionaire. But if you are going to be a billionaire, you need to have some 'luck'. Almost all billionaires agree that their level of success goes beyond hard work. But hard work is the only way many of them know to prepare themselves for good fortune.

Should you rely on luck? ›

It doesn't hurt to get support from others. The thing with luck is that you get better chances of acquiring a good fortune the more times you attempt something, and you can have more tries if you have more resources. Applying this logic, you can get better opportunities and success if you have more options in life.

Is luck a mindset? ›

By interviewing over 400 self-described lucky and unlucky people, Wiseman's research indicates that luck isn't “just luck”; it's a mindset. Lucky people encounter and capitalize on chance opportunities, whereas unlucky people do not.

What is the fake Einstein quote? ›

9 Albert Einstein Quotes That Are Totally Fake
  • The definition of insanity is doing the same thing over and over and expecting different results. ...
  • Everything is energy and that's all there is to it. ...
  • International law exists only in textbooks on international law.
Mar 14, 2014

What was Einstein's most famous quote? ›

"Imagination is more important than knowledge" is often taken to mean that your conceptions outweigh what's real.

What was Albert Einstein's IQ? ›

His performance beats those of physicists Stephen Hawking and Albert Einstein, who were both estimated to have IQs around 160.

What does Aristotle think about luck? ›

That luck is an incidental cause is the first major doctrine of Aristotle's account in Physics 2. The second is that luck is not a cause of things that occur in the same way either always or for the most part (2.5. 196b10–17). Luck is thereby opposed not only to necessity but also to regularity.

What are the 4 kinds of luck philosophy? ›

Nagel identifies four kinds of luck in all: resultant, circ*mstantial, constitutive, and causal.

Does luck require skill? ›

Luck is a skill itself.

Success that you have by chance and not because of anything that you do (Macmillan Dictionary) Good things that happen to you by chance, not because of your own efforts or abilities (Oxford Learners' Dictionary)

What did Shakespeare say about luck? ›

Fortune brings in some boats that are not steered. As good luck would have it. Farewell, good Salisbury, and good luck go with thee! This is the third time; I hope good luck lies in odd numbers.

What is the Greek quote about luck? ›

The Greek philosopher Seneca said, “Luck is the intersection of preparation and opportunity.” The main reason I put this quote in the book is to try to make myself look intelligent by quoting a Greek philosopher. But you already knew that. Yet the essence of what Seneca said is most certainly true.

Why we should stop saying good luck? ›

First, “good luck” is a pessimistic phrase. It encourages, as the psychologists say, an external locus of control. In non-psychology-speak, this means the phrase “good luck” encourages us to see events as outside of our control (as opposed to within our control).

What religion is based on luck? ›

Buddhism. Belief in luck is prevalent in many predominantly Buddhist countries. In Thailand, Buddhists may wear verses (takrut) or lucky amulets which have been blessed by monks for protection against harm.

Why do humans believe in luck? ›

But believing in luck can serve a useful function. psychologists say. It may help us coping with chance events, such as being involved in an accident, a mugging or natural disaster, as it can help people feel more optimistic when circ*mstances are beyond their control.

Do most people believe in luck? ›

Sixty-eight percent of Americans believe in one kind of luck or another. Thirty-two percent said they don't believe in luck at all, but 31% of them still said they follow lucky superstitions to be on the safe side, according to paysbig.com.

What gives you more luck? ›

Here's what Richard had to say about how to attract good luck: Maximize Opportunities: Keep trying new things. Listen To Hunches: Especially if it's an area where you have some experience, trust your intuition. Expect Good Fortune: Be an optimist.

What is the trinity of luck? ›

It is believed that destiny of any man depends upon the power of the Trinity Luck – Heaven, Earth and the Human Luck.

Do Christians believe in luck? ›

Everything happens by the will of God. We don't need luck because as Christians, we have the maker and upholder of all things in the universe watching over us and living inside of us! He knew us before we were born and He “knows the plans He has for us” (Jeremiah 29:11).

What do scientists say about luck? ›

Many of these studies have found that what a person might perceive as “luck” has more to do with psychology than probability; “luck” is actually just her own positive attitude that keeps her open to new opportunities or perceiving patterns in random acts of chance.

Are optimistic people luckier? ›

That is to say, we're only as lucky as we think we are, and luck begets luck. This makes optimists the luckiest people of all, according to Bloomsberg University philosophy professor Steven Hales, who writes in Aeon, “Luck might not be a genuine quality of the world at all… Luck judgments are a matter of perspective.”

Are some people naturally gifted? ›

Gifted children are born with natural abilities well above the average for their age. If your child is gifted, you might notice these natural abilities in the way they're learning and developing. Children can be gifted in any area of ability, and they can also be gifted in more than one area.

Are we born with skill or is it learned? ›

The science of skill acquisition has been the focus of a number of recent studies and books. As it turns out, we are born with very few, if any, natural talents and skills. Excellence is borne not of any particular innate ability, but of practice. In other words, you can be good at whatever you want.

What are natural born talents? ›

Here are seven of them.
  • 1) Adaptability. In an ever-changing and fast-paced world, adaptability is a vital talent for children to have and develop. ...
  • 2) Perseverance. ...
  • 3) Honesty. ...
  • 4) Enthusiasm. ...
  • 5) Inquisitiveness. ...
  • 6) Teamwork. ...
  • 7) Entrepreneurship.
Sep 21, 2017

Which is the luckiest person? ›

1. Frane Selak - Widely regarded as one of the luckiest people in history due to a series of remarkable escapes from death and a subsequent lottery win. Selak's lucky streak began in 1962 when he was on a train that derailed and plunged into a river, killing 17 passengers.

What is the most lucky thing in the world? ›

  • The Four-Leaf Clover: Ireland. This symbol has origins of biblical proportion: Eve reportedly plucked one as she and Adam were kicked out of Eden. ...
  • The Lucky Cat: China and Japan. ...
  • The Horseshoe: Ireland. ...
  • The White Elephant: Thailand. ...
  • The Wishbone: United States.

What are the 7 lucky Charms? ›

Here's the story behind some common good luck charms throughout history:
  • Four-leaf clover. According to legend, the luck of the four-leaf clover goes back to Eve, who supposedly carried one out of the Garden of Eden. ...
  • Horseshoe. ...
  • Pocket lighter. ...
  • Rabbit's foot. ...
  • The color green. ...
  • The number seven. ...
  • Penny.
Mar 9, 2016

What is the #1 secret of lucky people? ›

Generosity is an exceptionally powerful “secret” of lucky people. Many of us tend to wait until we feel like we have enough for ourselves before we can share. Lucky people give that no thought. When they see a need or an opportunity, they instinctively act — without calculating the cost.

Is it better to be rich or lucky? ›

The proverb "It's Better to Be Born Lucky Than Rich" claims that it is better to begin life as a lucky person than a person of wealth.

What do you call someone who is always lucky? ›

blessed, elite, fortunate, jammy (British, slang)

Can you succeed without luck? ›

If you just study hard or play the piano every day, it's no use waiting for luck. You need to figure out what are all the things that you need to do to reach your specific goal and then put in the work. In other words, success isn't based on just luck or just hard work.

Where does success come from? ›

The word success comes from the 16th Century Latin word “succedere” meaning “come close after”. It evolved to the word “successus” which means “advance, a good result, and a happy outcome”.

Why is success not based on luck? ›

Successful people aren't 'lucky', they are just persistent individual who simply create opportunities with consistent effort for great things to happen— “An execution that gave them the chance to be 'lucky' in the future.” When it comes to success in life, it's always good to banish the word, 'luck'.

Is success due to hard work or luck? ›

The more local the comparison becomes, the more success is determined by hard work. When you compare yourself to those who have experienced similar levels of luck, the difference is in your habits and choices. Absolute success is luck. Relative success is choices and habits.

Does success start in the mind? ›

Success Begins in Our Thoughts

The process is that thoughts become actions and actions produce results. So the equation starts with the thoughts. So the key to success is to start with and control the thoughts that we have. Good thoughts become good actions become good results.

Who is the key of success? ›

The American Academy of Achievement members describe how they applied these six principles to their own lives — passion, vision, preparation, courage, perseverance and integrity — to set them on to their individual paths to success.

Where is the key to success? ›

“The key to success is to focus our conscious mind on things we desire, not things we fear.”

What do successful people have in common? ›

7 Things Successful People Have in Common
  • 1) They are dreamers. Successful people dream big and don't put boundaries on how far they can reach. ...
  • 2) They are willing to fail. ...
  • 3) They invest in themselves. ...
  • 4) They network and connect with others. ...
  • 5) They take action. ...
  • 6) They embrace change. ...
  • 7) They see the bigger picture.

Why success is rare? ›

The fact is, achieving success requires a combination of risk-taking, making sacrifices and putting in an immense amount of effort, among other things. And let's face it: Those risks and sacrifices are scary enough to dissuade many people from the high-stakes world of entrepreneurship.

What makes a person lucky? ›

Lucky people hold an attitude of gratitude. They can regularly list things they are grateful to have and grateful not to have. They have trained themselves to notice when they have been fortunate, and they have started to believe that good luck follows them wherever they go. They say thank you for every favour.

Does luck play a role in success? ›

Of course, a lot of personal characteristics such as hard work, optimism, tenacity, a growth mindset and skills do matter but without a healthy dose of good luck, they may not result in great success.

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