by Howard Marks, Oaktree Capital
Sometimes these memos are inspired by a single event or just one thing I read. This one â like my first memo 24 years ago â grew out of the juxtaposition of two observations. Iâll introduce one here and the other on page seven. Contrary to my wife Nancyâs observation that my memos are âall the same,â the subject here is one Iâve rarely touched on.
The Role of Luck
The first inspiration for this memo came in early November, when I picked up a copy of the Four Seasons Magazine in my hotel room in Riyadh, Saudi Arabia. I happened to turn to an article entitled âIn Defence of Luckâ by Ed Smith. Itâs been in my Oaktree bag ever since. In his two opening paragraphs, Smith presents a thesis for dismantling:
âSuccess is never accidental,â Twitter founder Jack Dorsey recently tweeted. No accidents, just planning; no luck, only strategy; no randomness, just perfect logic. It is a tempting executive summary for a seductive speech or article. If there are no accidents, then winners are seen in an even better light. Denying the existence of luck appeals to a fundamental human urge: to understand, and ultimately control, everything in our path. Hence the popularity of the statement âYou make your own luck.â
Thatâs all it took to get my juices flowing. I â along with Smith â believe a great many things contribute to success. Some are our own doing, while many others are beyond our control. Thereâs no doubt that hard work, planning and persistence are essential for repeated success. These are among the contributors that Twitterâs Dorsey is talking about. But even the hardest workers and best decision makers among us will fail to succeed consistently without luck.
What are the components of luck? They range from accidents of birth and genetics, to chance meetings and fortuitous choices, and even to perhaps-random but certainly unforeseeable events that cause decisions to turn out right.
In discussing the existence and importance of luck, Smith cites the popular book Outliers by Malcolm Gladwell:
Attacking luck has never been more fashionable. No matter how flimsy the science behind the theory, popularized by author Malcolm Gladwell, that success must follow from 10,000 hours of dedicated practice, it has hardened into folklore.
Outliers is best known for Gladwellâs observation that itâs this magic number of hours of practice that makes the difference for those who are most successful. But thatâs only part of Gladwellâs message, and people who think his book is all about hard work and practice miss the point. Having set out the â10,000- hoursâ thesis, Gladwell largely stops talking about it and turns to spend much more time on something he calls âdemographic luck.â This is actually the antithesis of an insistence that hours of effort suffice.
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