Book of the Week: The Success Equation

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“I’d rather be lucky than good”-Lefty Gomez


Sometimes, it is easy to spot a lucky guess. When Paul the Octopus, the most famous resident of the Sea Life Centre in Oberhausen, Germany, successfully picked the winner of seven straight FIFA World Cup matches in 2010, few people believed it was due to the cephalopod’s superior football knowledge.


But separating luck from skill isn’t always so straightforward. Is the trader who has a good year, or even a good decade, leveraging his own unique market insight or simply riding a wave of luck? Is the basketball player with the “hot hand” suddenly sinking shots because he has upped his game or because the laws of statistics suggest he was bound to rattle off a series of three-pointers eventually?


In general, sorting out luck from aptitude can be a daunting task. Michael Mauboussin takes up the challenge in his latest book, “The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing.” Currently serving as Chief Investment Strategist at Legg Mason Capital Management, Mauboussin has an obvious professional interest in dividing the lucky from the skilled. But he also has a statistician’s mind and a philosopher’s soul, meaning that his book is about much more than how to invest money with the right people. Instead, it is a wide-ranging exploration of everything from statistics to psychology.


Perhaps the most important concept Mauboussin discusses in the book is his notion that luck and skill represent opposite sides of a linear continuum. While a few events can be attributed either wholly to luck (think winning the lottery) or to skill, the vast majority of outcomes involve a combination of the two. The trick is determining the relative importance of luck and skill to any outcome. Mauboussin’s attempts to decipher the problem lead to some interesting exercises, such as ranking sports based on the percentage of luck involved versus the percentage of skill. (Spoiler alert: Of the major sports, basketball is most influenced by skill, unless you consider chess a sport.)


While untangling the often complicated relationship between competence and luck, Mauboussin also manages to explain the nuances of a number of familiar statistical and logical concepts. He provides thorough explanations of regression to the mean, the post-hoc fallacy and building predictive models. While that may sound tedious, Mauboussin weaves the ideas into the narrative with enough skill to make the reader forget that he or she is back in Statistics 101. For readers who prefer the math-free Cliffs Notes version, Mauboussin also includes a section called “Ten Suggestions to Improve the Art of Good Guesswork in a World That Combines Skill and Luck.”


But skipping to this section would be a mistake. There are many fascinating ideas in “The Success Equation,” and each one deserves its fair share of attention from the reader. After all, while it might be better to be lucky than good, none of us knows just how long our luck will hold. Knowing whether chance or skill is more important in a given situation may be more critical to a successful strategy than having an abundance of either characteristic.


Photo courtesy of mooinblack /