Conor Mac's avatar
$349.9m follower assets
Luck, Regret, and Good Investing
I wanted to share these two short articles (both centred around luck & regret) because they build on something that I wanted to dive further into in my recent post, ‘valuing the unknowable. There, I talked about how there are unknown unknowns, there are people who obsess over noise at the expense of signal, and that the best use of time would be to acquire businesses that create environments conducive to benefiting from these strokes of luck that are so critical to long-term returns; whether we admit it or not. Even Buffett himself said as much in his Berkshire letter last week.

  • “Our satisfactory results have been the product of about a dozen truly good decisions - about one every five years - and a sometimes-forgotten advantage that favors long-term investors” - Warren Buffett

Housel’s piece observes the differences in how people process bad experiences and good experiences. When most people experience bad times they tend to think of it as having been a risk. He suggests the logic is seldom reversed; where people attribute good times to luck; the opposite of risk. I suspect they, instead, allow it to inflate their ego; “I did that, that was all me”. But neither luck nor risk is permanent.

  • “Nothing too good or too bad stays that way forever, because great times plant the seeds of their own destruction through complacency and leverage, and bad times plant the seeds of their own turnaround through opportunity and panic-driven problem-solving” - Morgan Housel

This quote reminded me of creative destruction in some ways. It also left me with a deeper sense of appreciation for those humble enough to admit when they were simply the benefactor of luck. And then we have the Ensemble Capital memo, which takes a look at how luck, good and bad, always play a role in investment outcomes (but this is applicable to life, too).

  • “Investing is a decision-making business. Letting outcome-driven regret seep into your process grinds the machine to a halt, rendering it useless or destructive to value creation. At Ensemble, we’ll continue prioritizing process over outcome and think that’s the healthiest approach investors can take. In the end, results are what matters. But to reach the intended results, you must follow a process that works” - Ensemble Capital

The piece focuses on regret and why we should use mistakes as learning opportunities. Following a mistake, you have two options; regret or learn. To regret is like slicing yourself with both sides of a double-edged sword, afflicting twice the pain. To learn from a mistale is a method of healing and will make you wiser.

Josh Kohn-Lindquist's avatar
Morgan just started trying out a new podcast too, if you are the podcasting type.

Love the way he sees the world and investing.
Conor Mac's avatar
@joryko Did not know that! To be honest I stopped listening to them as much in 2021, but this is enough to get me to try and build that habbit again. What's it called?
Josh Kohn-Lindquist's avatar
@investmenttalk He went the creative route and named it the Morgan Housel Podcast 😂

Very fun listen on my walk yesterday
Conor Mac's avatar
@joryko haha, guess I coulda found it pretty easily then. Thanks Josh!
Joshua Simka's avatar
Great Buffett quote on luck! "...sometimes forgotten advantage that favors long-term investors." I think what he's hitting on is that luck is easier to appreciate in hindsight. In the short term, luck is often mistaken for skill.
Dissecting the Markets's avatar
Thanks for sharing these two articles! I will read them right now.
Dissecting the Markets's avatar
For the Morgan Housel article, I carry a motto where the more successful and lucklier I get, the more I donate to my local mosque. Donating more money keeps the bad spirits away as the bad spirits can eat the money I donate than eat my soul. It's a myth/tradition that I adopted from hearing an Islamic story from the Hadith (I'll have to double check my sources).



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