Source: James Austin, Chase, Chance, and Creativity (1978)
Attributing outcomes to skill alone is (obv) an impossibility. One's activities are always mediated by contingency. But even without invoking a philosophical attitude, we can acknowledge this in our daily life.
As Cobb asks Ariadne in Nolan's Inception, "So how did we end up here?"
That said, conventional discourse--with its lazy default to "either/or" constructions--pits skill against luck.
James Austin's magnificent 1978 book rejects this false binary, offering a nuanced typology of "chance."
In entrepreneurial circles, there is a well known 2007 Andreessen blog post on "Luck and the Entrepreneur: The Four Kinds of Luck."
It's worth reading, but it comes nowhere close to the profundity of Austin's 1978 work. Andreessen acknowledges: "It's the best book I've read on the role of luck, chance, and serendipity in medical research--or, for that matter, any creative endeavor." (emphasis added)
Austin's typology is as follows:
Chance II: motion, stirring the pot
Chance III: discernment, built upon multidisciplinary forays that allow the perception
Chance IV: "comes to you, unsought, because of who you are and how you behave"
As with slippery concepts, analogies and metaphors help our understanding (see Field Note 57: On "Metaphor and Counter-Conventional Investing").
🎸 Since guitar is my avocation, I'll use this admittedly personal context to ground the typology.
The common set up: I find myself in an improv / jam situation, anxious about completely whiffing 😓:
- Chance I: a far superior player randomly shows up and steals the show; I sit back, relax, and enjoy.
- Chance II: it's my turn; I spontaneously play whatever notes fall under my fingers with energy and stumble upon a few that happen to sound good.
- Chance III: I notice the chord progression is in a minor tonality, so I rip some notes from the dorian scale; sounding better now.
- Chance IV: the progression changes to a Plini song I listened to 8,000 consecutive times, over which I had privately explored for no particularly strong reason the sound of an exotic Indian raga scale. I know exactly what to do.
And so, "the links of Chance IV can be drawn together and fused only by one quixotic rider cantering in on his own homemade hobby horse to intercept the problem at an odd angle." (Austin, p. 76)
Importantly, chance is comprised of a mixture of types I through IV.
And when properly viewed this way, the skill vs. luck dichotomy becomes nonsensical, and we can inspire agency without compromising humility, especially in the face of both the complicated and complex (see also Field Note 50).
What does this have to do with investing? Everything.
Summary box provided by the great Austin attached.