Editor’s Note: As a reminder, stock and bond markets are closed today in observance of Juneteenth. Our offices are also closed to commemorate the holiday.
Below, Alexander Green continues with the next installment in his series analyzing luck versus skill when it comes to finding success in both life and investing.
– Madeline St.Clair, Assistant Managing Editor
In my last column, I talked about New York Times columnist Robert Frank’s book Success and Luck: Good Fortune and the Myth of Meritocracy and, in particular, his thesis that the difference between the rich and the non-rich in this country is not talent and hard work but luck.
He calls the idea of a meritocracy “a myth.”
We all know folks who owe their success to luck. Lottery winners, for starters. But also – and far more commonly – people who were born into great wealth… or married into it.
(Although marrying into wealth is not usually just a matter of “luck.”)
Of course, there are also people who were simply in the right place at the right time – and reaped the benefits.
But is “good luck” really the deciding factor in most of today’s wealth creation?
I don’t think so. However, I’ll readily concede that for some people, bad luck is the deciding factor for their lack of success.
Like you, I’m sure, I’ve known really talented people who were hit by various bolts out of the blue.
Some were severely injured (or killed) in car accidents. (And a few in plane crashes.)
Some have been shipped off to war zones and suffered debilitating injuries. Others developed serious diseases or experienced unforeseeable setbacks.
There are endless examples of how an unpredictable stroke of poor luck ended or greatly diminished someone’s dreams of economic success.
Yet in his book, Frank argues that great fortunes are also built through luck. He says businesspeople don’t like to hear their success explained away like this, but that it’s true anyway.
My own experience argues against this.
In my many years in the money management industry, I dealt with a lot of highly affluent men and women – most of them self-made – who routinely described themselves as “just incredibly fortunate” or “completely blessed.”
That doesn’t mean they felt like lottery winners. Most of them worked long, hard hours.
As business owners, they took serious risks and put in many years where they were the first to work, the last to leave and the last to get paid.
Yet however hard they worked, most of them realized that success was never guaranteed. As a result, they felt a sincere sense of gratitude and humility.
Of course, it’s one thing for someone who built a fortune to feel fortunate. It’s another thing for a New York Times columnist who doesn’t know them to insist that they were “just lucky.”
Frank doesn’t have anything a reputable statistician would call data.
(Alas, luck is not easily quantified.)
What he has instead are anecdotes that he uses to make claims that fall somewhere between dubious and totally unsubstantiated.
For example, he tells the story about how Bill Gates had the good fortune as an eighth grader in the late 1960s to attend one of the only private schools in the country that offered students unlimited access to computer programming terminals.
Gates himself says…
I had a better exposure to software development at a young age than I think anyone did in that period of time, and all because of an incredibly lucky series of events.
And this explains Gates’ $127 billion net worth?
While that experience clearly benefited Gates, it hardly begins to explain his incredible business and financial success.
Gates’ parents were heartbroken when he dropped out of Harvard his sophomore year to pursue a business opportunity he was convinced would vanish by the time he graduated.
But he couldn’t have been more right.
Within just a few years, he licensed his computer operating system to IBM (NYSE: IBM) for $80,000 rather than selling it outright.
He reckoned that other PC makers would soon copy IBM’s open architecture and would need to license his system.
It was one of the great business decisions of all time.
Collecting royalties from both PC makers and software developers worldwide, Gates made a fortune for shareholders and became the world’s richest man in the 1990s.
He wasn’t “just lucky” to get into Harvard. He wasn’t “just lucky” to found Microsoft (Nasdaq: MSFT). And he wasn’t “just lucky” to license his operating system to IBM.
Moreover, what happened to those other eighth graders who had access to those terminals?
Are they running Oracle (NYSE: ORCL) and SAP (NYSE: SAP) today? Are they listed right below Gates on the Forbes 400?
Of course not. Because the programming experience doesn’t begin to explain Gates’ fortune.
Yet Frank tells one story after another like this.
In his world, every Horatio Alger story is really about a chance meeting, an unexpected windfall, a roll of the dice.
Even if you’re smart and talented, says Frank, it’s not because you stayed in school, learned a financially valuable skill and/or committed yourself to lifelong learning.
No, intelligence is tied to genetics and upbringing. Those things depend largely on your parents. And if you happened to have good ones, you were just lucky.
Got that? Lucky genes. Lucky upbringing. Lucky circumstances. Lucky breaks.
If you’re rich, you’re just fortunate. And if you’re not rich, you weren’t.
As I stated earlier, in some cases this is true. But can anyone really believe this explains how fortunes are created in America?
Mr. Frank seems unaware that there are proven principles of wealth creation available to anyone, Black or white, rich or poor, old or young.
And we’ll discuss those in my next column.