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Chapter 15. Ten Lessons for Investors > Lesson 10: Luck overwhelms skill (at le...

Lesson 10: Luck overwhelms skill (at least in the short term)

The most depressing lesson of financial markets is that virtues such as hard work, patience and preparation do not always get rewarded. In the final analysis, whether you make money or not on your portfolio is only partially under your control and luck can play a dominant role. The most successful portfolio managers of last year, all too often, are not the ones with the best investment strategies but those who (by chance) happened to be at the right place at the right time. It is true that the longer you invest, the more likely it is that luck will start to even out and that your true skills will show through; the most successful portfolio managers of the last 10 years are less likely to get there because they were lucky.

As an investor, you should take both success and failure with a grain of salt. Neither is a reflection of your prowess or lack thereof as an investor or the quality of your underlying investment strategy. While you may not able to manufacture good luck, you should be ready to take advantage of it when it presents itself.


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