Untangling Skill and Luck
Paper of the Week 3
Untangling Skill and Luck How to Think About Outcomes—Past, Present, and Future, By M.J. Mauboussin can be found here.
“The skill versus luck debate is one of the key topics in the colloquial discussions. The recommended article is a nice review of several angles from which to tackle the split. Moreover it tries to link the results from different areas of research to the decisions in financial investment.
On a personal note if the entry in a position can be “a given” or the result of an ambiguous mixture between luck and skill, a good exit should have more to do with the skill of acknowledging exit patterns.
The literature on the clock games can shed more light on the trade off between gains from waiting versus the risk of being preempted. All overcrowded positions from carry trade to investments in gold face similar timing problems. Practical criteria to decide on a good exit time were suggested in a previous opinion. ” Lucian Isar