In this episode of Success That Lasts, Jared Siegel discusses the power that narratives hold over us when making financial decisions and how to think more empirically. He talks about the roles that skill and luck have in investing as well as in various aspects of life.
Tune in here, at delapcpa.com/podcast, or wherever you listen to podcasts:
Here are a few highlights from the episode:
- “After a career of helping people make financial decisions, one thing is overwhelmingly clear to me: people are not calculators, they’re storytellers,” Jared claims. Humans are biologically wired to connect cause and effect, even if it may be incorrect. The more you want something to be true, he adds, the more likely you are to believe the story that overestimates the odds of it being true.
- If we learn how to second guess ‘easy’ narratives and learn to think more empirically, we can gain an advantage.
- According to a study done in collaboration with Dartmouth College, University of Chicago, California Institute of Technology and UCLA, less than 2% of people attempting to add value to the portfolio through predictions actually possess skill.
- Over a shorter time frame, the influence that luck plays, both good and bad, is greater. However, as you expand the sample size, the influence that luck plays is diminished, and outcomes become much more predictable.
The Success Equation by Michael Mauboussin
Luck versus Skill in the Cross-Section of Mutual Fund Returns, a research paper by Eugene F. Fama and Kenneth R. French