Let's look at this stock market crash.
There are 4 potential conclusions.
1. You think that the market has bottomed.
And you're right.
2. You think the market has bottomed.
And you're wrong.
3. You think that the market has not bottomed.
And you're right
4. You think that the market has not bottomed.
And you're wrong.
Ok, let's look at this one at a time.
If you think the market has bottomed due to whatever reasons and analysis.
You buy.
If you're right... you conclude it's cos of your analysis. You think you're smart.
Are you sure that it's cos of your analysis? Who can confirm it?
You look at all your calculations and your charts and think. No... confirm it's cos of my smarts. It's not luck.
IF you're wrong. You would think you're not smart, or maybe just unlucky...
But who can confirm?
No one can confirm smarts or luck.
Investing or calling the bottom of a stock market isn't like 1+1 = 2.
There's no defined formula that says, oh if this happens and this happens then the market has bottomed.
Same as the other way.
You think the market has not bottomed due to whatever analysis and beliefs.
So you don't buy and wait...
And you're right... maybe 2 months later the market drops again. And you think you're smart...
But how do you know? Who can confirm that it's due to your analysis and not blind luck?
Or maybe you're wrong and the market goes up... and you think it's cos you aren't smart enough, your calculations and analysis is wrong.
Once again, how do you know?
The thing is, in many parts of life, we don't know whether what we do is smart or just plain lucky.
It's not a test where you can calculate and someone can mark the paper and give you a grade on it. There aren't any confirm right or wrong answers.
Maybe my "analysis" of the stock market is just a coin flip. I flip a coin and call heads, it goes up and tails it goes down.
And my super coin is always right.
So I flip the coin and I buy the market and I'm right.
And I think I'm smart cos I'm smart enough to co-relate the results of flipping a coin with my decisions on the stock market.
But anyone from outside would view me as just dumb lucky.
So how do you know your calculations are right?
Maybe charts don't show anything? But somehow many people are looking at it, and they find conclusions in it. And some people will be right, and some people will be wrong.
Those who are right, will think that they are smart. It's survivors bias.
And they could do this many times, and they may be right many times. So they must be damn smart...
But are they really? Who knows? They could be just super lucky and keep calling the market right.
In life, many things are pretty much probabilities.
With smarts, you can maybe improve your odds. But that doesn't determine the outcome.
If you play mahjong, this becomes very apparent.
There are some really skilled players, I call it "technical play".
They play the game technically. Meaning, every game for every individual player, there is a "set/correct" things to do, or how to play. It increases their probability of winning cos it mathematically increases the winning probability. BUT they may lose.
There's no "gut feeling". Just pure mathematical calculations. But in the long run, they would probably win. Unless everyone in the game is around the same standard. Then it averages out in the long run.
It's easily concluded that studying is important to success in life, cos mathematically, it increases the odds. But I'm sure you know of people who weren't successful in school who ended up very well off, or someone who's smart in school who didn't do too well.
Maybe joined a wrong company, maybe was too nice and lent money to someone and got cheated or invested in the wrong investment, etc...
It's easy to look at billionaires and think that they must be super smart people.
And they themselves would think they are super smart. How many would come out and say they were just plain lucky? How many people read about... "Top 6 habits of billionaires", or "The 10 things billionaires do to be successful"?
You mean millionaires don't practice these 6 habits? If it's so easy to be a billionaire, then why aren't millionaires, billionaires as well?
By the sheer fact that there are so little billionaires basically guarantees that they are by default, lucky.
Billionaires are outliers. In any set of data, outliers are basically random points which are likely there due to sheer chance.
I'm not saying that they aren't hardworking people. BUT, the element of how much luck they require to be at that position in life is severely understated.
Right place, right time, meeting the right people, sending the right letter/email at the right time, etc.
There are many smart people.
There are many hardworking people.
There are many lucky people.
There are many smart, hardworking, lucky people.
There are a few billionaires.
Anyway, the point about this post is...
How do you know if what you did is based on your smarts or skill or were you just plain lucky?
Chances are, you don't. You don't know and there's no way to confirm it.
Even if you're right to call the market bottom, and made the right investment decisions, you never know if you're just lucky or due to your own analysis. Cos maybe you've been looking at the wrong charts and wrong numbers drawing a wrong conclusion to the wrong thing, but resulting in the right decision to make an investment and somehow it ended up right.
So... don't think you're too smart. Cos humans tend to think they are smarter than they really are. Cos they like to know that they are right, that they have the power to control their own fate.
It's easy to overestimate ourselves.
BUT it's just as easy to underestimate ourselves too.
And it requires wisdom to know the difference.
There's a lot of things within our control. To increase our probabilities of success, of happiness, etc.
And we should try to do as much as we can to increase our probabilities, BUT also to recognize that there are some parts which won't be within our control and we have to leave that to chance.
And accept that somethings are just not within our control.
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