Meridian Blog

In the spirit of the recent St. Patrick’s Day holiday, luck has been on my mind as to how it affects our financial journey both through financial planning and investment management.

Luck is defined as success or failure brought by chance rather than through one’s actions with a reasonable expectation that a different outcome could have occurred. While we can all agree that life includes an element of luck, living life hoping things fall in place due to luck is not typically a wise strategy or goal.  But setting yourself up for luck can be done through financial and goal-focused investment planning. To quote Oprah, “luck is preparation meeting opportunity”.  The preparation being a regularly reviewed financial plan with clear, specific goals and an investment portfolio designed to help achieve those goals.  By taking action with a financial and investment plan, we open ourselves to increased opportunities (or maybe even opening ourselves to more luck) because we are not making knee-jerk reactions based off short term circumstances that are beyond our control.

One of my favorite charts by Carl Richards provides some great context as to how we can focus on creating goals based on what matters to us and what is in our control (i.e – not luck).

Source: https://behaviorgap.com/

When it comes to investment success, the reality is there are a variety of factors that play a part outside of just planning, including market conditions, economic trends, investor behavior, and honestly a combination of skill and luck.  The debate on whether investment success is more of a skill or luck is a highly contested one. I would even go a step further and argue this is also determined by the definition of what is the definition of investment “success” …. but that is a topic for another day!

While some argue that investment success is all about skill, others believe that luck plays a significant role. However, interestingly most experts tend to agree that it’s a combination of both.  Michael Mauboussin – author, professor at Columbia Business School, and head of consilient research at Morgan Stanley, has spoken and written about the presence of both luck and skill in investing and in the end, has come to an interesting conclusion.

“So the first thing to acknowledge is that when we think about luck and skill, you can probably think about it as a continuum, right? So some activities all skill, no luck. Some activities all luck, no skill. Most of the interesting things in life are in the middle. …. When we try to identify where there is skill, we need to focus on process, not just [those] outcomes. And because there is so much luck, you have to, you have to look at a fairly large, long period of time to try to sort it out.”

Granted, not all investors will have the luxury of long periods of time; however, having a solid investment strategy that includes diversification, working with an advisor who is doing thorough research, and making informed decisions are all skills that can increase chances of success in the market. At the same time, factors like economic conditions and unforeseen events can also impact investment outcomes, making luck an undeniable factor to consider. Ultimately, it’s essential to focus on what you can control, such as your investment strategy and decision-making process, while being mindful of external factors that may impact your investments.  And most importantly when possible, having a long-term perspective.

It may seem intimidating to come at investing with a long-term mindset, but aligning investments with your plan, keeping money in the market and waiting for it to appreciate is a lot less stressful than constantly reshuffling and hoping things fall in your favor.

Last week I was lucky enough to attend a conference in San Diego with a couple of members of the Meridian team.  In between the conference and continuing education sessions, we were able to sneak away to test our luck with whale watching. To our good luck we were able to see at least one baby grey whale in the harbor, although our extremely bumpy ride out to sea didn’t result in us seeing any more whales.  Grateful for lack of sea sickness, the company, all of the skills we picked up, and luck we experienced during our trip.

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