Luck and skill balance

LUCK AND SKILL BALANCE 6

Luckand skill balance

Perfectbalance between luck and skill

Manypeopleattributesuccessto eitherluckorskill.Skillisdefinedas theabilityto putinto useone’sknowledgereadilyandeffectivelyin performanceorexecution.On theotherhand,luckcan be termed as circumstancesoreventsthat workfororagainst a person.Somepeopleconsidersuccessas a consequenceof effortandtalentwhileothers believethatsometimeseventalentedindividualswhoworkharddofail.Studieshaveindicatedthatmostindividualstendto associatesuccesswith highskillalonewhich may not be thecasealways.On theotherhand,badoutcomesorfailureare not alwaysassociatedwith poorskilleither.Bothluckandskillshaveimportantimplicationson investmentsas shownby theessaybelow which clearlyoutlinesthebalancebetween skillandluckforone to be successful(Mauboussin,2012).

Discussion

MichaelMauboussin notesthatdespite thefactthatan organizationrequiresexpertsin orderto succeed,itis advisableto knowmoreabout importanceof luck.Hesaysthatthelucknormallyexistsin three conditionsthefirstone luckoperateson organizationorindividualbasissuchas companyoryourteamoryou.Seconditcan be badorgood,andthethirdthingsuggeststhatit’sadvisableto acceptthefactthata differentresultcould haveoccurred.Recentexperimentsshowthatchanceandeventsmay influencemarketresultsfarmoregreatlythan itwasthoughtpreviously(Mauboussin,2012).

Bothskillandluckcontributeto thesuccessin investmentsin manycases.Hesaysthatcompaniesseekto improvetheirperformanceby employingstarsfrom othercompanies.Accordingto him, thispracticehas manychallenges.Firstan individualcan performwellin one settingbutperformpoorlyin another.Second,starsare likelyto be in somecasesbeneficiariesof goodluck.Hegivesan exampleof theracetrack,whereoddsare on thetoteboard.Theoddsreflectthepossibilitythatthehorseis supposedto wintherace.Thebasics are thespeedof thehorse.In thiscase,iftheoddsshowtheabilityof thehorse,thenitcannot be aninterestingbet.Thiscan applyto investmentwherea distinctionbetween fundamentals, as wellas expectations, would formthecoreof anygivenqualityprocess(Mauboussin, 2012).

Sometimessuccesshas littleto dowith previousperformanceandmoreabout futureexpectations. One should lookfora stockwherefinancialperformanceexpectations are relativelyunassumingin relationto whatone’sanalysishas provento be achievable.Healsosaysthatthere is noestimatefortheamountof capitalrequiredin orderto generatecertainearnings.Agoodexampleis wherewehavecompanyA invests$1.00 to earn$0.10, andCompany B invests$2.00 to earn$0.10. In thisexample,theamountof moneyinvested cannot be theonlyfactor which leadsto goodearnings(Mauboussin, 2012).

Somestudiesshowthatallone’scareerrequiresis a littleluck.One of thebiggestcomputerprogrammers wasGary Kildall. Hesawan unknowncompany,buildingcomputerson chips.Hewasone of thefirstpeopleto realizethepotential of microcomputers andsohedevotedhisenergyto writingsoftware fortheinnovative device.Gary Kildall founda companythat wassellingmicro-computers software in themid1970s. At the,beginningworkersin thecompanywalkedbarefootandworeshorts. Butthecompanystillmadegreatprofitandin early1980s thecompanyoperatingsystemdominatedthemarketshareforpersonalcomputerswhichmadeuseof Intel microprocessors (Mauboussin, 2012).

Thecompanywasverysuccessfuluntil IBM Company strucka dealwith Bill Gates. BillGates madewisedecisionswhichpositionedMicrosoft to reignover Kildall’s companyat a vitalmomentwhenPC industrywasdeveloping.It’sveryclearthatKildall failedto seetheimplicationof theIBM deallike thewayGates sawit.IBM dealwith Gates ledto theproductionof a KIldall lookalike product,CP/M-86. Thisproductwasrenamed by Microsoft as PC-DOS andIBM hadan advantageof settingthepricesforbothproducts.Laterin thiscompetitionKIldall waseliminatedfrom themarketanddiedfrom complicationsrelatedto alcoholism(Mauboussin,2012).

BillGates propertiming may haveledto hissuccessandwhenhewasaskedwhatpercentageof hissuccesswasattributedto luckheagreesthattheluckplayedan importantroleto hisgreatachievements.In particular,hearguedthatMicrosoft wasstartedat theperfecttime.Hewentaheadto statethatthepropertiming in theintroductionof thefirstcompanyof software gearedtowards personalcomputerswasvitalto hissuccess.Healsoacknowledgedthefactthatpropertiming wasnot completelyluckhoweverwithout goodluckhewould not haveachieved(Mauboussin, 2012).

Conclusion

Someresearchers havecarriedout studiesthat haveproventhatamong thetopcompaniesonlyten %to 15% of thementionedcompaniesconfidentlyattributetheirsuccessto trulyskill.Therestarefavoredby theluckandlittleskills.Thestudiesrevealthateventhoughmarketsuccessdepends on theproductquality,sometimesthebestcompetitorin a productgrouping may fail.Thisshowsthatmostof thecontestantsacceptthefactthatsuccessis a matterof skillandgreatlya matterof probability.All theseexamplesleadas to theconclusionthatforan individualto be a successfulonehas to usetherequiredskillwhenluckpresentsitself.

References

Mauboussin,M. J. (2012). Thesuccess equation: Untangling skill and luck in business, sports, andinvesting.New York: Wiley.