Judge a decision by how it was made, not by one result.
Luck and skill look alike up close.
Five star fund managers and their records. Rank them by skill. The most skilled first.
A record that a coin could make is not yet proof of skill.
← Red LinesRed Line 40 of 48 The idea The scene Where you see it Where it bends This game’s numbersHow strong the proof isAStrong proof Where it comes from
In investing, a good decision can have a bad year and a reckless one can pay off. One result says little; how the decision was made says more.
Rita put all her savings into one share on a stranger’s tip, and it doubled. Sam bought a cheap world index fund for 20 years, and it fell 10%. Sam made the better decision; Rita got lucky.
Over a single year, luck can beat skill. Over many decisions, skill shows. That is why one great year proves little.
Over many decisions, skill does show.
Worked out on this page (coin odds)
Fund results barely repeat from one period to the next once costs and luck are taken out, in study after study.
- On Persistence in Mutual Fund Performance Mark M. Carhart, The Journal of Finance 52(1), 57-82, 1997
- The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing Michael J. Mauboussin, Harvard Business Review Press, 2012
Checked 2 Nov 2026 · How we grade
- A Strong proof: Many good studies or long official data, from different teams or countries, point the same way.
- B Good proof, with limits: Solid studies agree on the direction, but the size varies, or the data covers few places or few kinds of people.
- C Mixed proof: Some good studies for, some against, or the evidence covers only part of the line.
- D Thin proof: Mostly one book’s argument, one survey or stories. It may be wise, but it has not been tested well.
- = True by the sums: It follows from arithmetic, so no study can overturn it. We still show what real data says.
Michael J. Mauboussin, The Success Equation (2012). In our words, not quoted.
See it in numbers: Hindsight (From Zero)
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