Howard Marks, chairman of Oaktree Capital, is out with his latest memo. Entitled, “Dare To Be Great II”, the letter is an addendum of sorts to an original piece he penned in 2006 called Dare to Be Great.
In his latest missive, Marks focuses on how investment managers need to define success and outline what risks they’re willing to take to achieve it. Marks devotes several paragraphs to this, stating investors have to:
– Dare to be different – It isn’t easy being different – Dare to be wrong – Dare to look wrong – Looking right can be harder than being right
Marks notes,
“In order to be a superior investor, you need the strength to diverge from the herd, stand by your convictions, and maintain positions until events prove them right. Investors operating under harsh scrutiny and unstable working conditions can have a harder time doing this than others.”
There are numerous aspects that affect how much and what types of risks an investment manager can and will take: emotional stability, career risk (employers and/or clients), etc. Obviously institutional investors face much of the latter with investors/clients becoming more short-term focused everyday it seems.
The Oaktree chairman concludes that,
“Unconventional behavior is the only road to superior investment results, but it isn’t for everyone. In addition to superior skill, successful investing requires the ability to look wrong for a while and survive some mistakes.”
“Success is never accidental,” Twitter founder Jack Dorsey recently tweeted. No accidents, just planning; no luck, only strategy; no randomness, but perfect logic.
It is a tempting executive summary for a seductive speech or article. If there are no accidents, then winners, obviously, are seen in an even better light. Denying the existence of luck appeals to a fundamental human urge: to understand, and ultimately control, everything in our path. Hence the popularity of the statement “You make your own luck.”
But it isn’t true. One problem is linguistic. “Making your own luck” is self-contradictory. The definition of luck is something outside your control. So if you are “making your own luck,” whatever you’re doing intentionally clearly does not fall into the category of luck.
Dorsey’s tweet, however, does encapsulate conventional wisdom. Observe carefully how he describes success, not because it will teach you how to succeed, but to discern the prejudices of our society.
Attacking luck has never been more fashionable. No matter how flimsy the science behind the theory, popularized by author Malcolm Gladwell, that success must follow from 10,000 hours of dedicated practice, it has hardened into folklore.
This is especially true within sport. Look at the effort to underplay the most important of all lucky strokes: the luck of good genes. They are being written out of the script. Talent (another term for genetic good fortune) has almost become a dirty word, replaced by nouns with a clear moral dimension—guts, determination, sacrifice. The denigration of innate ability reached its peak in the baffling backlash against record-breaking swimmer Michael Phelps during the London Olympic Games. Critics invoked the bizarre logic that Phelps’ physical talents give him an unfair advantage. (His double-jointed ankles and huge feet create a “flipper” effect.) Tyler Clary, his own teammate, expressed a common view in a sharp sentence: “The fact that he doesn’t have to work as hard to get that done, it’s a real shame.”
However absurd, this is how we are told to view winning, in sport and in life. Success must be earned by an effort of willpower, preferably in a triumph over adversity. Natural talent conflicts with the consoling fantasy that we live in a meritocracy where hard work always pays off in the end. But it doesn’t. We simply never hear about the thousands of would-be athletes (or businesspeople, or musicians, or inventors) who put in their 10,000 hours but lack the talent to make significant progress.
Luck also has a moral dimension. Michael Young, the sociologist who coined the term “meritocracy,” described the danger of thinking that success must be deserved just because it has happened: “If meritocrats believe, as more and more of them are encouraged to, that their advancement comes from their own merits . . . they can be insufferably smug.” It is a mistake to think that luck is a primitive, backward-looking concept. In fact, recognizing luck as a factor in success is inherently civilizing.
It can be difficult to accept that we are all, to some degree, victims and beneficiaries of circumstance, but we are. Our understanding of evolution shows that success relies on the interaction of chance mutation and natural selection. The point here is that we cannot say the successful evolution of an organism is caused by 60 percent chance mutation and 40 percent selection. They do not “mix”; they interact to produce something quite new. Chance is a crucial ingredient that goes into an end product that may be unrecognizable from its constituent parts.
I would make the same argument about an individual life. We are misled by histories of great men and women in which it’s implied that each planned his or her ascent meticulously, homing in on success like a soldier finding a flag in an army training exercise.
The origins of success are usually much more subtle and complex. Successful people, by being open to opportunity and exposing themselves to chance, take new directions that prove more fruitful than anyone could have predicted. We change in many ways as we grow. A missed opportunity represents the failure to evolve into a different, better person.
Believing in luck does not imply fatalism, as many people mistakenly believe. But it does demand openness—and humility.
What about effort, skill and planning? All necessary, of course—but never sufficient.
I happened to turn to an article entitled “In Defence of Luck” by Ed Smith. It’s been in my Oaktree bag ever since.
That’s all it took to get my juices flowing. I — along with Smith — believe a great many things contribute to success. Some are our own doing, while many others are beyond our control.
Demographic Luck
Did You Do It All Yourself?
Did I Do It All Myself?
Luck in Investing
Where Is It Easier to Get Lucky?
Luck and Efficiency
Are Markets Efficient? Is the Hypothesis Relevant?
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