Chapter VII

Chapter VII: Good Luck

7 min · 8 ideas

André Kostolany: "The stubborn investor must have four essentials: money, ideas, patience — and luck." (translated from the Chinese edition)

1. Luck Matters More Than You Think

Three Italian researchers once ran a computer experiment they called a "game of life." Inside the computer lived a group of people, each with a different level of talent. The researchers let them live for forty years, randomly running into good or bad events along the way. When the run was over, the people at the very top in wealth were mostly not the smartest or most capable. They were people whose ability was a little better than average, but who had had an unusual amount of good luck along the way. The wealth of the whole group also ended up in an "80/20" distribution, with a few people holding most of it. (Pluchino, Biondo and Rapisarda, "Talent vs Luck," 2018. This study is a computer simulation, not data from real lives.)

This result isn't telling anyone to stop working hard. The lesson I take from it is to put your effort in the right place.

• Your ability doesn't have to be top-notch; being above average is foundation enough for success;
• Spend the rest of your energy on just two things: running into less bad luck, and coming across more good chances.

Hold this up against the golden formula for getting rich, "income − expenses + asset growth = wealth," and it becomes clear:

• Income and asset growth depend on meeting more good luck: put your effort into things you have a gift for, enjoy and do well; keep your eyes wide open, and find the opportunities around you;
• Expenses depend on meeting less bad luck: bad habits, gambling, and the people and situations that would drag you down — avoid them whenever you can.

2. Good Luck Is an Attitude toward Life

The psychologist Richard Wiseman, who studied luck for years, found that lucky people have one thing in common: their eyes are open. They stay curious about the people, events and changes around them, so when an opportunity passes by, they see it. People who are always calling themselves unlucky often have their heads down too low, working desperately at the one thing in front of them. Opportunity actually walks right past them several times, and they never look up. That matches my own experience.

Opportunities come to everyone more or less fairly; the difference is whether you see them. So if you want to change your luck, start by changing your attitude toward life: open your eyes, widen your view, and learn to spot the opportunities around you.

3. Find Your Destined Path

There's a saying you often hear: success is the sum of three things — talent, opportunity and effort — and if you take away any one of them, it doesn't work. In my own words: the same effort doesn't guarantee the same result. Even if you trained as hard as a world champion, you might never win a title, because each of us is born with different gifts.

Since you can't choose your talents, what you can choose is your direction: put your energy into the path you have a gift for and truly love. Find your destined path, work hard along it, and keep your eyes open for the opportunities around you. That is the real game plan for life.

As children, we grew up hearing the line from the Tao Te Ching that "the great vessel is late in the making" — that great talent matures late. But in the silk manuscript unearthed in 1973 at Mawangdui, in Changsha, the same line reads "the great vessel needs no making." Many scholars feel that "needs no making" sounds more like something Laozi would say, in keeping with his ideas of "non-action" and "the Way follows what is natural": a truly great vessel isn't forced into being by carving. Look through history and you'll find many people who spent the first half of their lives unknown, until at some moment they met a particular chance and, almost overnight, achieved great things. My own takeaway when I read this: do the preparation you should do, and as for the rest, there's no need to be in a hurry.

A Right Attitude toward Life

Win without arrogance — there is no need to feel superior;
lose without despair — there is no need to feel downcast.
If you succeed, it is only that luck was with you; if you fail, calmly accept what fate has arranged.
Do not judge a person by success or failure: the successful are no gods, and never look down on those who fail.
Hold on to hope for tomorrow, for good fortune will keep coming around;
but opportunity is meant for those who are prepared.

4. Investing: The Easiest Way to "Borrow" Other People's Luck

When you work a job or run a business, you have only your own share of luck to draw on. Investing opens up another road: you can put in a little money and ride on other people's good luck.

The world's best businesspeople, and its most brilliant engineers and inventors, are working flat out every day to create value. Buying the whole market is like placing a little money on every one of them, so a small share of their hard work and luck becomes yours. I can't guess which company will be the next great one, and I don't need to: once it grows, it will find its way into the index on its own.

In his 2016 letter to shareholders, Warren Buffett said that professional investors, taken as a group, will over the long run lag amateurs who do nothing and simply sit tight. I think the reason is that professionals tend to lose out by trading too often, paying too much in costs, loving to make predictions and chasing whatever is hot. If you do none of these things, you're already ahead of most people.

5. The Stories of Three Ordinary People

There are many stories of ordinary people becoming wealthy. These three are the ones I think are most worth passing on to you.

Ronald Read (1921–2014). He worked at a gas station in Vermont for about 25 years, and after retiring he took a part-time job cleaning at a department store. He lived extremely frugally: he bought his cars used, and in winter he fed his stove with wood he had split himself. When he died in 2014, his family was stunned as they went through his things: he had left about US$8 million, including US$1.2 million to the local library and US$4.8 million to the hospital. He had no secret. He simply lived frugally, held on to shares of solid big companies, reinvested his dividends, and left the rest to time.

Grace Groner (1909–2010). She worked as a secretary at Abbott Laboratories and never married. In 1935 she spent US$180 on 3 shares of the company's stock, and she never sold a single share after that, reinvesting every dividend. When she died 75 years later, that US$180 had grown to about US$7 million. She kept not a cent of it and gave all of it to her alma mater, Lake Forest College.

Eugenia Dodson (died at about 100; her bequest was made public in 2006). She lived simply all her life. After her husband died in 1949, she inherited the shares of his company and held them for decades, barely touching them; over more than fifty years they grew to about US$35.6 million. She gave every bit of it away, to support diabetes research and the cancer center at the University of Miami.

None of the three was a highly paid professional. When I lay their stories side by side, I see just a few words: save, wait, don't tinker, and let compounding do its slow work.

But I also want to be honest: Read and Groner bet on just a handful of stocks, and luck played no small part. If the company Groner bought had later gone under, the story would have been completely different. Today we have a safer way: use broad-market index ETFs in place of a handful of individual stocks, remove the risk of "picking the wrong company," and keep only the three things truly worth learning from them — frugality, patience and time.

Key Takeaways

1. Success = talent + opportunity + effort; luck matters far more than we imagine.
2. Where to focus your effort: less bad luck, more good luck. Good luck is an open, wide-awake attitude toward life.
3. Work hard along your own destined path, and spot the opportunities around you.
4. Buying the whole market means riding on the hard work and luck of the best people in the world.
5. Ordinary people, too, can build considerable wealth through frugality, patience and time.