02nd Feb, 2022
Every reasonable investor has, at least once in a lifetime, their own ‘Lucky Fool Moment’. A moment where everything falls into place and Eureka, your random bet works and you multiply your money manifold.
A down payment made on a real estate deal wherein you have just paid 5-10% of the price and suddenly even before the full payment is made, you get an offer of 2X or 3X, a return of 20 -30 times your initial investment. A business idea which goes well and you get a valuation beyond your wildest imagination. Or a stock you bought on a whim, suddenly becomes a 5 or a 10 bagger or more in less than a year.
Shankar Sharma from First Global, recently said in an interview, “There have been millions of ‘lucky people’ on the planet in the last couple of years. The pandemic rid millions of jobs or gave them ample free time and digitisation offered the ease of trading in any asset class or deploying money on speculative bets. The Crypto mania and stock markets gave those millions the keys to the kingdom, by giving them full-time investing/trading jobs. We have reached 2022, in almost one piece, but with a planet full of highly confident ‘Robinhood’ Investors, Is this going to end well?
What most people forget or don’t understand about such moments is that the outcomes are simply a range of probabilities. At any given point in time, you can have a range of probabilities supporting any thesis – bullish or bearish and any of the thesis can work. The outcome has nothing to do with any level of skill but is pure luck.”
What sets off the lucky fool syndrome? Psychologists call it the ‘Self-attribution bias.’ It means we’re inclined to take all the credit for things going well, but we have no problem blaming outside forces when things go wrong. On top of our bias, we have a very difficult time separating skill from luck.
Nicholas Taleb explains it beautifully, “Lucky fools do not bear the slightest suspicion that they may be lucky fools — by definition, they do not know that they belong to such category. They will act as if they deserved the money. Their strings of successes will inject them with so much serotonin (or some similar substance) that they will even fool themselves about their ability to outperform. Our hormonal system does not know whether our successes depend on randomness.”
As a result, we’re susceptible to the ‘lucky fool syndrome’ and the problems that come with it. Hence, It is best to encash your bets in a mania and get on with it rather than keep riding your luck.
Encash your ‘Lucky Fool Moment’ if given the opportunity and stay blessed forever.