A and V Oil and Gas limited, through its attorneys, says any discrepancies between reported oil production in its Exploration and Production Operations and the actual production receipts at Pointe...
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Separating luck from skill
The investment world is not a neat and well-ordered place where the future can be predicted with certainty and specific actions always produce specific results. It can be quite illogical and random.
Truthfully, much in investing is ruled by luck and many who dabble in markets, and attain positive investing results, delude themselves that it was their skill, rather than luck, that caused them to be successful. Every once in a while, someone makes a risky bet on an improbable or uncertain outcome and ends up looking like a genius.
It’s important to recognize that such an outcome occurred because of sheer luck and boldness, not skill. Because luck can often play a huge part in life’s results, outcomes based on random events should be viewed differently from those that are not. For example, $1 million earned through Russian roulette does not have the same “value” as $1 million earned through, say, the diligent and artful practice of ophthalmology. Sure, it’s the same $1 million and can buy the same goods, but one’s dependence on randomness (luck) is significantly greater than the other.
So to the outside world (and certainly your accountant) they would be identical, but qualitatively, they should be considered different. In investing therefore, one of the major elements in separating luck from skill, is time. Time is perhaps the best mechanism for sorting the lucky from the skilful. In the short run, a great deal of investment success can result from just being in the right place at the right time.
Someone who is aggressive enough, at the right time doesn’t need much skill to generate strong investing results. The easiest way to see this is in boom times where the highest returns often go to those who take the most risk – surely this does not imply that they are the best investors right? Thus, examining an investor’s track record over time, and gleaning the results, is a prudent way to determine his or her skilfulness.
Also, in separating the skilful from the merely lucky, it’s essential to recognize that the quality of a decision is not determined by the outcome. It’s a concept that can often get lost in the investing world. A good decision is one that a logical, intelligent and informed person would make under the circumstances as they appeared at the time, before the outcome was known. The events that transpire afterward make decisions successful or unsuccessful, and those events can lie well beyond anticipation.
Thus, in the long run, separating the lucky from the skilful is also an exercise in separating good decisions, from bad ones.