How Much Of Rich People's Success Is Luck And How Much Is Skill?

Personal opinion? Starts with right place and right time, aka mostly some good fortune (I won't call it luck). Not the old adage of just working hard and it'll pay off. Sure, try and make sure you build it up so you have the resources to take advantage of right place, right time. Don't get me wrong. From there, it turns to skill in terms of not just keeping what they've earned, but hopefully building on previous successes. So you can buy an NBA team off the back of selling your dotcom era baby or sell Dr. Pepper (the company, not just the sodas on a street corner) to buy an MLB team, NHL team and half of an English premier league team or start launching cars into space just as a worldwide televised gag, etc.

All rich people in America today owe their wealth to incredibly fortunate circumstances. America is like 5% of the world's population and has a vastly outsized portion of the wealth. Life expectancy and education indicators are high. We have a stable government buttressed by the strongest military in the world which keeps trade routes for an international supply chain open. All of these are profound elements of the Pax Americana which are not often found in world history. This is truly a fortunate time. I believe in providence, not luck, but whatever it is, we've been dealt a great dollop of it. I could go on for hours, but please accept my abbreviated overview here.

Even within America, the wealthier deciles tend to have wealthier children. We can play nature and nurture all day, but it's always a little bit of both. There may be some genetic precursors which predispose someone to delayed gratification or being a better businessperson. There's a better environment sometimes, better education, better home life, what have you. It's both.

The best business people I know could lose everything and would have made 9-figure fortunes again within 20 years, nearly guaranteed. For them, wealth-building is a replicable skill, and if given the right environment like America today, they're going to work it and get mightily rich. It's replicable and skill-based for many of your best business people and investors.

TLDR: it's both, and a lot of rich people could genuinely do this stuff over again, but all of it is predicated on the wildly fortunate circumstances we enjoy today. Let that put a smile on your face.

I've found the harder I've worked, the luckier I've gotten. The universe has a way of equalizing these two characteristics.

I heard a serial entrepreneur say it best. Everyone assumed he was a big risk taker. He openly said he managed his career with low risk. He made sure he had plan b, c, d, e all lined up should plan a fail. Most people just assume a binary outlook with entrepreneurship where you go all in and either succeed or fail. Not quite so.

Luck is a factor but skill takes the front row. 

You're using 2 radically different examples. Mark Cuban is a total moron--he hit it rich in the 1990s .com boom on a garbage product he sold to a stupid company (I think it was Yahoo!). Elon Musk also made his original fortune during the .com boom when he co-founded PayPal, a real product. But Musk became ultra rich from not dumb luck--he spent nearly his entire fortune when he took over Tesla. Tesla was on the ropes and was nearing bankruptcy and Musk went all-in to bail them out. I'm doing this from memory so I don't remember the date on that but it was something like 2008-2010--something like that. As recently as 2019, Tesla stock had not made Musk particularly wealthy. He spent a decade or so building one of the only successful car start-ups in a century. That's not dumb luck.     

ddd1

Title says it all. For people that are worth 100M or 1 billion+, what percentage of their success do you think was luck or skill? Lets say someone like Mark Cuban, Elon Musk, etc.                                                                      

Going back to OPs post which specifically says +$100 MM. I would say 99% luck. Outsized returns almost necessarily mean that whatever you were doing just happened to be at a time when there was a gap in the market allowing you to make those outsized returns. Maybe, you identified that gap in the market but nonetheless, for the gap, your skills, your capital, and everything to align at the exact moment the gap existed is a lot of luck.

Now what about a person who is worth $5 million. Probably 50/50 luck and effort because to make that sort of money, you're fighting in an established market.

Think of someone like Bill Gates. The timing for his operating system was key and why he became a billionaire. If Bill Gates was born 10 years later, he would likely still be a successful person maybe with some sort of tech company or another, but he would not have made the outsized returns related to a specific idea, a specific time, capital available, a skill gap in the market, etc.

Posts like this often focus on how lucky a specific person is. Take for example Elon Musk again. And yes, he is very lucky on timing. But to ask how much is luck, you need to ask yourself how rich would this person be if they didn't have timing on their side. I think in the case of Bill Gates and Musk, you can say for certain that these guys would have been successful regardless of when they were born with timing removed. They just wouldn't have been billionaires.

the longer you make your time horizon back the more luck is involved. 

For example, say some great investor, maybe Warren Buffet, makes a trade that nets him ~$100M. That's probably skill. Probably somewhat skill he was able to amass the money to make that investment. But as you go back, even Buffet himself will say, probably more luck he was born into a country, with a skill set at a time that allows him to take advantage of that skill set. That's the luck. 

My belief has always been you have to work really really hard and get lucky. I don't think many people worth north of $100M (not inherited), slacked off. But I think a lot of people work really really hard and never get lucky. Takes a break, but when the break comes you gotta be ready for it which is where the hard work comes in. 

It's luck.  

Plenty of highly skilled people crash and burn we just never hear about them.   They're also usually skilled enough that they'll get a soft landing and still be considered a "success" despite any entrepreneurial setbacks. 

When I read about the folks making mega money at some point it involved them taking a significant risk - but they usually had a nice cushion to fall back on.  Case in point Jeff Bezos.  He started w/ a "loan" from his parents.  Give me an interest-free loan with no real payback period (are my parents going to sue me?) and I can afford to roll the dice.  Coming out of PRINCETON, there are any number of white-collar jobs he could have taken had his "little startup" failed, and voila - a 6-figure existence to crash land upon. He obviously needed to be good to scale it the way he did but I'd argue the luck of being well-connected and well-to-do set him on the path.  LOL, I remember thinking "who the hell wants to buy used books online?" when Amazon launched.  

 

Luck? Maybe. Nepotism? You god damn bet

ddd1

Title says it all. For people that are worth 100M or 1 billion+, what percentage of their success do you think was luck or skill? Lets say someone like Mark Cuban, Elon Musk, etc.                                                                      

100% luck.  This is the entire concept of a black swan.  Yes, you have to be smart and hardworking and take risks.  But guess what?  For every person who makes a billion dollars, there are a thousand, or ten thousand, people who are equally smart, equally hard working, and equally good at taking calculated risks.  Some of them succeed to a slightly lesser extent.  Most of them don't have that one connection they needed, don't time the market down to the right month/year, don't have XYZ break in their favor.

Warren Buffett is a genius, but if one of his early investments had gone awry, he wouldn't be where he is today.  What if Coca Cola had done something immensely stupid in the early 90s and his investment there collapsed?  That has ripple effects for the next 30 years which means maybe he can't bail out Goldman, can't make any of the other investments which brought him to his current net worth.  Again, not to rip on him, because he's generally made the right choices, but someone was going to make those right choices, and if one of his had been the wrong one, then maybe we all hang on Matt Jones' annual shareholder report and not Buffett's.  If Twitter didn't exist, would Mr Musk be worth a fraction of what he is?  So much of his net worth is built on his self-promotion on social media.  If he had tried to make EVs 30 years ago (assuming the tech existed) I doubt he'd have done as well.

Pleasantly surprised that everyone on WSO seems to agree having a 9 or 10 figure net worth is mostly or entirely up to luck.

Fact is, luck plays a hell of a hand in how well off pretty much everyone ends up. Easily the single largest determinant of how wealthy 99% of people are as an adult is the circumstances of their birth. Born into poverty in a developing country? Good luck, buddy. Hope you make it. Born into a middle class American family? Congratulations, you are going to live better off than 90% of the world.

No idea what the actual numbers are, but perhaps 30% of the people who end up with even $1 million are really smart. Maybe 20% are charismatic. Maybe 80% work hard. Maybe 99% of them are the kindest, most wonderful human beings on the planet. But 100% of them lucked out in some way or another.

Almost all luck. Which isn't to diminish the achievements of successful people - it's just that hard work and intelligence are necessary but nowhere near sufficient. Every truly self made person had to put it all on the line and risk being wiped out by factors completely outside of their control. 

If you consider being born into a good family as luck, then being rich is 70% luck

If you consider having good genes as luck, then being rich is 99.9% luck

Sharpe ratio, Treynor ratio, M2 ratio, Jensen's alpha ....