Better to be Lucky Than Good
About a month ago Bloomberg released a story about a man who poured his life savings into Tesla stock in 2017. Fast forward to today and his initial investment of $10,000 has turned into roughly $1,000,000. Below is a short video of the story.
Although Brandon originally invested in 2017, Tesla stock really only started to surge toward the end of 2019. Since October 2019 the stock has risen around 1,300%. For a company so large and well known, this kind of rapid growth is unprecedented.
With little to no prior investing experience and no real plan, he picked a single stock based on research that basically amounted to “I like this company.” He broke nearly every diversification rule and smart investing principle. I don’t think it’s a stretch to say that this was not a good investment strategy. Yet, he’s probably outperformed every professional money manager for the past year and a half.
As my dad often says on the golf course, “It’s better to be lucky than good.”
And it’s true. I’ve watched golfers hit terrible shots that have a better outcome than if they would have hit a regular, good shot. They’ll barely graze the top of the ball, shooting it off in a direction they didn’t intend, ricocheting off a tree, bouncing a couple of times, and eventually landing a few feet from the hole. But just because the outcome was great does not mean they’re a good golfer or that they made an awesome swing. All it means is they got lucky.
The only problem with relying on luck for superior results, in golf or investing, is that it’s not repeatable. If you have a bad golf swing you can still hit a few lucky shots here and there, but by the end of the round you’ll end up with far more bad shots than good ones. Over the long run, a consistent, repeatable swing will beat out random lucky shots.
The financial media frequently celebrates investors who made reckless decisions and happened to get lucky. What they fail to mention are the hundreds of other investors who made the same decisions in similarly speculative investments and lost all of their money as a result. Risk and luck are two sides of the same coin.
Do I wish that I had bought Tesla some shares last year? Of course. If I would’ve known what the stock would do I would’ve been right with Brandon Smith and invested all that I had. He made a gamble that just as easily could have backfired. But it paid off.
While I am thrilled with my diversified investment performance this past year, it’s hard not to look at individual stock returns like Tesla’s and not be envious. It’s true what they say, comparison is the thief of joy. Watching as people make money and get rich in a short period of time while you’re not can make even the smartest investors do stupid things.
I would hate to see someone abandon their long-term investment plan and gamble with their future in an attempt to reach for more immediate, higher returns.
If you are one of those people who likes to speculate and is prone to feeling left out, I would recommend opening a small “play” account to scratch that itch. The reasons for keeping it small are obvious. If you’re bad at it, the losses won’t affect your ability to achieve your long-term financial goals and if you end up hitting it big, the positions won’t grow so large to the point where they swallow your entire portfolio.
So, remember that not all investment success is due to skill and smart decisions. The markets have rewarded plenty of ill-advised investment choices over the years. But just as you wouldn’t want to emulate a bad golf swing, reckless investment decisions that end up working out shouldn’t be replicated either.
Sometimes people just get lucky.
Thanks for reading!