Skill vs Luck

My Real Life Example

I thought this was a somewhat timely post regarding luck. The major markets (specifically the US) have experienced an (almost) non-stop run since 2009. Of course I’m cherry picking the start date at the end of the great recession. Take a look at how the Nasdaq has performed if you invested in the QQQ ETF.

The 10 year period is close to a 20% CAGR. Pretty wild stuff. Now if you happened to start investing in 2009/10 and just rode the Qs for 15 years, were you skilled or lucky. Many say luck. Many say skill. Of course, it’s probably a mix of both. You were lucky to start when you. But let’s think about how the Qs did from 2000-2009.

The first 3 years you lost a lot of money. The internet became more intertwined in our lives and changed so much about how we do business, yet you lost a ton of money. At the end of this period you were still well below break even. You did what every says to do “let time compound your money”. Yet it sucked.

So maybe there was some skill in those who intentionally focused on putting some money to work in the Qs after that horrendous ride.

Nice history lesson. But what am I getting at?

A question many successful people get is “how much of your success was skill vs luck?”

I find it fascinating to hear other people’s perspective on this question. I, personally, think the answer (and their reasoning) speaks volumes about how they view the world and probably much about their character. Today, I wanted to share an example of how I was nothing but “lucky” in my early days or at least that’s how I see it.

Background

I think many investors view skill and luck mainly through the lens of our portfolio. Something like “I was lucky I didn’t take a position in that company before they announced a raise” or “I knew that they were gonna report a great quarter (hence I’m skilled)”. It’s likely less often we look at things outside of finance unless they are immediate, like narrowly avoiding a car crash due to luck. And even less frequent than that, do we look at a time when we were nudged to make a decision that started us down a specific path. That is the genesis of this post.

I mentioned in a previous post about how I listened to my dad about Boyd Group and never bought the stock. That decision cost me a ton of money. Today’s example is how one decision he pushed me to make led me down the path to my financial freedom.

Backstory

When I was in high school, I never knew what my career would be. I didn’t have the grades for university (too much attention focused on girls and my part time job) and I didn’t have the desire to start a trade just yet. Thus, I decided to take a gap year and get a full time job. I figured the work experience would give me some direction. I got a manual labor job in a warehouse that shipped liquor all over the province. The wage was decent, my work hours were during the day and I was warm and got to stay inside. At the time, I didn’t have a big mortgage or kids so I was able to save quite a bit of money. It was well over and above what my parents charged me for rent. I still have a vivid memory of hitting the $10,000 mark in savings. I was aiming to save $15k before spending it. I finally had an idea of what I wanted to spend my savings on…. a Camaro lol. I, even, had the year and options picked out. And, of course, the extra modifications I wanted to install to make it go faster (because that’s what every 19 year old needs).

I told my dad about it, thinking he would be on board as he had a couple muscle cars of his own. “That’s a stupid idea.” he said bluntly (Dad is a bit rough around the edges). “What you need to do is buy a house or save it for later.” I was a bit stunned. “What do you mean?” I asked him. He tried his best to explain the idea of building equity in a house and/or saving so you have way more money later. A few days later, he took me to see someone at the bank (I think a mortgage broker). This was the second or third time I had been to a bank with my dad. The broker went over how much money a person could save on interest if they had a large down payment and made extra payments on their house. This took a bit for my brain to register, but it did (eventually). He then said “you should invest while you are still young”. He then showed me what saving at a young age would do for my net worth. Even with a 7% return in the stock market, I would be able to retire before 60. Though the conversation stopped there, as it was too much for me to digest, the seed had been planted.

After that meeting, I was on a mission to save 25% down on my first house. To be fair, my first house was a fixer upper that was 50 years old and it was many moons ago. Given how much I saved and how cheap the house was, I had it paid off in less than a decade.

Over the following months after the appointment at the bank, I started thinking more about this “compound interest” thing. I started reading book after book on how to invest. I chose to enter the automotive trade, due to the fact that I could work and save while getting an education. Additionally, the wages would be quite high for a middle class kid. That conversation and subsequent visits to the bank were life changing. I probably would have stumbled on the idea of compound interest later, but how much later? Guess I’ll never know.

What does this have to do with Luck

That’s the big question right? Well, I was lucky enough to have my health and a strong back to do the physical labor. I was lucky to be born to parents who supported my decisions, no matter how confusing they seemed. And, I was lucky to have my dad pipe up at a time when I was ready to listen, and then take me to the bank and introduce me to someone who could explain it better than him. This action made something very intimidating a lot easier. To be fair, he says he told me earlier about buying a house and building equity, but I forgot those conversations (too many girls on my brain). Last, but not least, I think I was also very lucky enough to approach money from a place of curiosity and empowerment. I have ran into many people in adulthood who view money and finances from a negative mindset.

This “lucky” circumstance started me down a path that involved picking my own stocks, paying off my first house in less than 10 years (with the help of the Smith maneuver), quickly progressing in my career and eventually becoming financially independent at age 35. Yes I know I did the work, but I was lucky enough to get a kick in the ass when I did.

How about you, do you have a similar story? I would love to hear about it.

Thanks for reading my work.

Dean