I've just finished reading The Success Equation. Wow ! Professor Mauboussin has done it again, that is, providing an interesting, relevant and fun to read book that is highly instructive. This may be my favorite of his books. Mauboussin defines and dissects Skill and Luck and the roles of both in our lives with a particular emphasis on business, sports and investing. By no means though is this merely an "investment " or "business" book as the concepts apply to just about all aspects of life.
How often do you hear someone say "good luck" , or "you're gonna need a lot of luck" with an almost cavalier or frivolous tone ? After reading The Success Equation I have a much greater respect for the role of LUCK in one's life. This, of course, is not meant to disparage SKILL but understanding and appreciating the relative roles each play (skill vs luck) can be instrumental in your decision process. The skill-luck "continuum" is described and depending where on the continuum a particular activity falls determines how one should deal with it. If you can better understand the relative role of skill and luck you are more likely to reach valid conclusions and make better decisions.
Importantly, there is thoughtful discussion as to why luck is often underappreciated as a factor.
Anyone who has read Mauboussin's work understands his prowess in unearthing and questioning so called "conventional wisdom" and generally thinking outside the box. This book continues on this path with each chapter providing real world examples from sports, business, and investing. Examples range from an analysis of Ted Williams batting average and the role of luck in superior performance of companies.
The book is highly educational with numerous principles and concepts introduced in each chapter including the de Moivre equation (variation of the mean is inversely proportional to sample size) and discussions on bias, randomness, reversion to the mean, and many, many more. Even ideas very familiar to me such as the prominent role of luck in investing- especially in the short run - are described with new vigor with the Playboy Playmate example. You cannot avoid coming away from this read without learning something meaningful. As I mentioned there are many examples from the world of sports, business and investing and I started thinking about Luck and Skill in politics !
Like most of the author's work The Success Equation is comprehensive citing the work and studies of many luminaries with robust notes and bibliography for the curious to explore.
Not everyone enjoys Statistics, ( I must admit being strange as I thoroughly enjoyed Stats in college and often attended two sections of the same class) but Mauboussin provides a good dose of education and understanding of Statistics in an easy to comprehend fashion like those rare college professors you wish were more plentiful.
The final chapters put the ideas from the rest of the book to work with specific methods such as the use of checklists and a framework for "untangling" skill and luck which will lead to better decision making. This book is unlikely to collect dust on the shelf as its thought provoking nature will lead me back to well often.
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