Luck & Risk
Hello people! How are you? It's April- we're entering the second quarter of the year 2023. I am pretty pumped up compared to March- joined a new company, started working out at the gym & finally, started learning finance once again. In this blog post, we'll be covering the second chapter, "Luck & Risk", the author Morgan Housel explains how luck and risk can affect one's financial outcomes.
The author states,
Luck and risk are both the reality that every outcome in life is guided by forces other than individual effort. They are driven by the same thing: You are one person in a game with seven billion other people and infinite moving parts. But both are so hard to measure, and hard to accept, that they too often go overlooked. We tend to downplay the role of luck and attribute the success solely to the efforts, ignoring the many factors outside of control. Bill Gates- a successful individual who was the beneficiary of skill, but also good luck. He went to one of the only high schools in the world that had a computer which allowed him to take advantage of the rise of personal computing. Warren Buffet, in one of his interviews said, "If I had been a female, my life would have been entirely different." The dangerous part of this is that we just try to seek the answers to questions such as-
Which is the best stock to buy?
Which are the best profit generating business ideas?
How to get rich?
How to retire early? Bill Gates and Warren Buffet belongs to some of the success stories. What about failure?
Did failed businesses not try hard enough?
Were bad investments made without enough thought?
Not always, obviously! The author says,
The difficulty in identifying what is luck, what is skill, and what is risk is one of the biggest problems we face when trying to learn about the best way to manage money. But there are two things which can help us point in better direction.
Be careful who you praise and admire. Be careful who you look down upon and wish to avoid becoming.
Therefore, focus less on specific individuals and case studies and more on broad patterns.
Realize that not all success is due to hard work, and not all poverty is due to laziness. Keep this in mind when judging people, including yourself.
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In case, you missed reading the Introduction- The Psychology of Money: Introduction and the first chapter- No One's Crazy
I hope you learnt something through reading this blog. If Yes, then make sure to like the blog, comment, share and subscribe to the email newsletter if you haven't yet. I post a blog every Monday at 7 pm IST, until then Happy Reading!
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