It isn’t enough just to be good. You’ve got to be lucky, too.
This is the central premise of Max Gunther’s book “How to get lucky”. I first came across this author when reading “The Zurich Axioms“, a set of investing rules followed by Swiss Bankers to manage risk and reward. It starts with this comforting idea that we fall short of our goals largely because of a lack of luck. That we deny the role of luck when successful only speaks to our susceptibility to survivorship bias.
And yet, according to Max, luck, in gambling, career, love, friendships and even in investing, isn’t completely random and can be improved “from mostly bad to mostly good”, by following thirteen techniques, which if practised promise to “change your life dramatically”.
The central ideas of the 13 techniques to get lucky summarized below in four mind maps [Click to enlarge individual images]:
The book does a good job of expanding each technique with real-life examples of people who applied the techniques. I found the applicability of some techniques to be significantly higher than others. Good short read overall.
13 11 takeaways for investors from Max Gunther’s How to Get Lucky:
- Distinguish between luck and planning
- Your investment results have a healthy dose of luck in them. Internalise this so you don’t feel invincible after a good year or question your intelligence after a bad year.
- Find the fast flow
- Instead of taking this to mean show up at every investor conference, find meaningful ways to engage with people who apply different investment philosophies.
- Take risk in measured spoonfuls
- Learning to invest is like learning to ride a bike or swim. You have to get in there and put small amounts at risk to understand what works for you. At the same time, never with amounts, you can’t afford to lose.
- Cut runs
- When a stock you own starts rising rapidly because a bunch of favourable factors aligned, don’t target riding it all the way. Be ok with exiting sometime before the peak.
- Select your luck
- Don’t let your ego or loss aversion get in the way of sticking with a poor stock even as it declines gradually. Cut your losses.
- Take the zigzag path
- Maybe you have the instincts of a trader. Maybe your skill is in finding obscure micro-caps. Or cyclicals. Or contrarian large caps. Every successful investor is successful in her own way. Explore a little to find your way.
- Be a pragmatic supernaturalist
- Corollary to point 1, sometimes luck overshadows supreme skill. Sometimes you get good results without a good process. Stay humble.
- Visualise the worst case
- Avoid leverage. Size your positions.
- Stay silent
- That urge to tweet about a pick that’s gone up 25% in the last week. Resist it so you can exit the position without feeling like you will lose face.
- Recognize non-lessons
- “Stocks fall in election years” / “Stocks rise in election years”. Wrong. “It’s an election year, stocks will be more volatile than usual”
- Accept an unfair universe
- The stock market does not owe you returns. Not even if you first lost money in Satyam and then again in Educomp.
The last two “Be a juggler’ and “Find your destiny partner” don’t seem to carry over to investing.