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You buy a stock. It goes up. Was that luck or skill? I think it kind of depends on who you are.

If you’re a hedge fund manager doing extensive fundamental and technical analysis, it was probably skill. If you’re Joe Shlabotnik, and you threw a dart at the newspaper, it was probably luck.

Same result, though!

Really, how you tell the difference between luck and skill is repeatability. If you keep making good calls over and over again, the chance that it’s simply a series of coin flips goes to zero. If you have one good trade out of 10, well, you were bound to get one right.

If you’re selecting a newsletter writer to guide you in your investing, or you’re actually hiring a money manager, you would want to focus on repeatability. If someone is making good call after good call, or good trade after good trade, if the returns are consistently high across trading environments, then it’s not luck. The problem is: There are very few people with that level of skill. There are very few people with Druckenmiller-levels of edge. They do exist—you just have to find them.

I recently had a student show me his portfolio. It had 20 stocks in it and looked a lot like the Dow. I said to him, “This portfolio probably does whatever the market does, right?” I mean, yes, it has gone up over time, but any fool could have bought the SPDR Dow Jones Industrial Average ETF Trust (DIA) and had the same result. Luck, not skill.

That isn’t to say there isn’t skill in long-only investing, although I wouldn’t really call it “skill.” I’d call it fortitude—you just have an ability to ride out the drawdowns. Skill is alpha. Everything else is beta. People confuse the two all the time.

What Is Luck?

I think a lot about luck in artistic endeavors. Justin Bieber was discovered on YouTube. Now you have millions of kids trying to get discovered on YouTube. Undoubtedly, some of them are more talented than Bieber. And they are toiling in anonymity. 

Some people get the “big break,” and others don’t. There is a science around engineering the big break, but again, there is a lot of luck. Grace VanderWaal got lucky on America’s Got Talent years ago, and everyone thought she would be the new star, but it hasn’t panned out. Meanwhile, Billie Eilish, who has been groomed for stardom her entire life, with arguably less skill than Grace, has taken over the world. I got a big break as a writer in 2011, but I have been trying to replicate that big break ever since and achieve repeatable success. I wasn’t getting it doing what I was doing, so I had to change things up. I think I might be on to something.

But the question is: Do you think there is such a thing as luck? What is luck? Luck is when good things happen to you more than they happen to other people, statistically speaking. I’ve said before that I am the luckiest person in the world, and Ed D’Agostino knows it—he’s seen it over the years. 

Here’s one of a million examples: In 2020, when I was buying the land to build my new house, we were worried that the land behind us would someday be home to a new housing development. We didn’t really want neighbors. Well, we bought the land anyway. The next day, the land, all 1,000 acres of it, was put under conservation easement. It can never be built on—ever. The value of my land doubled, then tripled, and then some. A fluke? A one-time thing? This stuff happens to me all the time.

But you have to put yourself in a position where you are positively exposed to luck. I am fond of saying that luck will never find you in your apartment—you have to get out there and make stuff happen. Go to parties, go to conferences, get on the plane and mix it up with people—that is where the opportunities are. 

I am writing this from my hotel room in Philadelphia—I recently signed with a new literary agent, and I met him for dinner last night. Good things are going to happen, but I have to do the footwork. I have to write the book! And books are hard. You do the hard thing, you get positively exposed to luck, and the rest is not up to you. You cannot will yourself to be successful. You can put yourself in a position to be successful, and you will or you won’t be, but it’s not your choice.

Nothing Is Sacred

The same is also true of investing. If you are good and not lucky, you will make a bunch of positive-EV bets over time, and on average, they will work out. If you are good and lucky, that is where the magic happens. 

Here is something I think about every single day: I come in and look at my portfolio, and I ask myself, if I were starting over from scratch, is this the portfolio I would have? If not, I get in there and make some changes. You can’t be nostalgic about legacy positions. Nothing is sacred. If you’ve been long Apple (AAPL) for 20 years, and you decide that AAPL no longer has much upside, then get rid of it and pay the taxes. We don’t get sentimental about investments here.

Also, you don’t have to be right about everything. Every position in the portfolio is not going to be a winner. That’s okay. There will be some winners and some losers. If the winners are bigger than the losers, you will be fine. 

I’m sure you’ve probably had the experience where things are going well, you’re making money, and you realize that it’s not taking a lot of effort. And making money doesn’t have to take a lot of effort. You take the right actions, let go of the results, manage risk, cut the losers—it’s really not that hard. It’s only “hard” when you’re in a fight with the market, when you know you are right and the market isn’t recognizing your intelligence. If you ever find yourself in a fight with the market, consider this: You’d be making money if you had the opposite position on!

Positively Exposed to Luck

But yes, I am the luckiest person in the world. Another fun fact about me: I bought wheat futures a day or two before the Ukraine invasion. You know what happened next—they were limit up 4–5 days in a row. Luck? 

Well, I was looking at the chart, and I said to myself, that is one fine-looking chart, and I wasn’t really thinking about the implications of a Ukraine invasion, even though Russia was amassing forces on the border. I was just reading the chart. But again, I put myself in a position where I could be positively exposed to luck. I put the trade on. 

Anytime you put on a trade, good things can happen. Bad things can also happen, but nobody really believes that they’re going to lose money on a trade when they put it on. And if you do, you should not be in the investing business. Just as we can manifest good luck, we can also manifest bad luck. It may seem silly and superstitious to believe that your attitude counts—why does the market care about our attitude? But somehow, that seems to be the case. If you believe you will succeed, you will usually succeed. If you believe you will fail, you will usually fail.

I wish you all the best of luck in your trading endeavors. I can’t really help with the luck—but I can help with the skill. This is what we’ve done with our Bond and Options Masterclass—we’re trying to help you become a more skilled investor. Maybe I should come up with a luck masterclass—no one is more qualified to write it than me.

Personal notes: My Daily Dirtnap conference is next week, on May 1–2. Then I am going to Mississippi on a writing retreat in the middle of May. Then at the end of May, I have a DJ gig at the MGM Grand in Las Vegas. Sounds like fun, but that is more stress than fun. I hope it goes well.

Jared Dillian, MFA