This has been making the rounds so I thought I’d comment on it. Aside from making Dorsey look like an ass (of course he may have just said that to be provocative), it makes some very good points but I think leaves some other out that are just as important. Here is the opening of Mark’s latest memo (full text linked below).

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Luck, Value Investing And Charlie Munger

The Role of Luck

The first inspiration for this memo came in early November, when I picked up a copy of the Four Seasons Magazine in my hotel room in Riyadh, Saudi Arabia. I happened to turn to an article entitled “In Defence of Luck” by Ed Smith. It’s been in my Oaktree bag ever since. In his two opening paragraphs, Smith presents a thesis for dismantling:

“Success is never accidental,” Twitter founder Jack Dorsey recently tweeted. No accidents, just planning; no luck, only strategy; no randomness, just perfect logic.

It is a tempting executive summary for a seductive speech or article. If there are no accidents, then winners are seen in an even better light. Denying the existence of luck appeals to a fundamental human urge: to understand, and ultimately control, everything in our path. Hence the popularity of the statement “You make your own luck.”

That’s all it took to get my juices flowing. I – along with Smith – believe a great many things contribute to success. Some are our own doing, while many others are beyond our control. There’s no doubt that hard work, planning and persistence are essential for repeated success. These are among the contributors that Twitter’s Dorsey is talking about. But even the hardest workers and best decision makers among us will fail to succeed consistently without luck.

What are the components of luck? They range from accidents of birth and genetics, to chance meetings and fortuitous choices, and even to perhaps-random but certainly unforeseeable events that cause decisions to turn out right.

In discussing the existence and importance of luck, Smith cites the popular book Outliers by Malcolm Gladwell:

Attacking luck has never been more fashionable. No matter how flimsy the science behind the theory, popularized by author Malcolm Gladwell, that success must follow from 10,000 hours of dedicated practice, it has hardened into folklore.

Outliers is best known for Gladwell’s observation that it’s this magic number of hours of practice that makes the difference for those who are most successful. But that’s only part of Gladwell’s message, and people who think his book is all about hard work and practice miss the point. Having set out the “10,000- hours” thesis, Gladwell largely stops talking about it and turns to spend much more time on something he calls “demographic luck.” This is actually the antithesis of an insistence that hours of effort suffice.

Getting Lucky (pdf)

I had a High School football coach, Frank Ruggiero who had this on the wall of our locker room “Luck is when preparation and determination meet opportunity”.

I believe that wholeheartedly. Step back and look at most really successful people. By successful I don’t mean heirs of the Walton’s, Warren Buffett, Bill Gates or any other heir. I mean the folks who started it all. Look at them and look at their lives. A stunning number of them overcame difficulties before they were successful.   Yes, 1955 and 1956 were seemingly prime years to be born in to be at the epicenter of the computer revolution. Yet, there were millions of births that year and only a handful made the big splash. Yes, to have Ben Graham as your teacher at Columbia in the 1950?s was to learn from the master of value investing yet Graham taught hundreds (thousands?) of students, yet there is only one Warren Buffett who basically went door to door in Omaha seeking funds for his partnership.

I am by no means saying “luck” for lack of a better word plays no role (being born in the US vs Somalia for example). What I am saying is that determination plays a far greater one. There are countless people who had the same “opportunities” as Gates, Buffett, Jobs etc did but never ascended the heights the way they did. Why? Lack of skill? Lack of determination? They quit at the first setback? Anyone who know the stories of Gates and Jobs know there were countless setbacks for them yet they never quit. Luck? No.

We can even take this same line of thinking and make it relative. Let’s talk about those “unlucky” and born into poverty. There is no doubt they have started behind the curve vs those born even to the middle class. Yet, every year millions of them get themselves out of poverty and break the cycle. Why? Were they “lucky” to get a job, find a mentor, actually complete high school, go to college, refuse to join a gang or start doing drugs?  I would say virtually all have had the opportunity and some made the right choices and others, did not. I think we denigrate the success of those who made the right choices by calling them “lucky”.

Take a look at Buffett’s right hand man Munger. Most people have no idea where he was when he was 31 and now one of the richest men in the world.

In 1949, Charlie Munger was 25 years old. He was hired at the law firm of Wright & Garrett for $3,300 per year, or $29,851 in inflation-adjusted dollars as of 2010. He had $1,500 in savings, equal to $13,570 now.

A few years later, in 1953, Charlie was 29 years old when he and his wife divorced.  He had been married since he was 21.  Charlie lost everything in the divorce, his wife keeping the family home in South Pasadena.  Munger moved into “dreadful” conditions at the University Club and drove a terrible yellow Pontiac, which his children said had a horrible paint job.  According to the biography written by Janet Lowe, Molly Munger asked her father, “Daddy, this car is just awful, a mess.  Why do you drive it?”  The broke Munger replied: “To discourage gold diggers.”

Shortly after the divorce, Charlie learned that his son, Teddy, had leukemia.  In those days, there was no health insurance, you just paid everything out of pocket and the death rate was near 100% since there was nothing doctors could do.  Rick Guerin, Charlie’s friend, said Munger would go into the hospital, hold his young son, and then walk the streets of Pasadena crying.

One year after the diagnosis, in 1955, Teddy Munger died.  Charlie was 31 years old, divorced, broke, and burying his 9 year old son.  Later in life, he faced a horrific operation that left him blind in one eye with pain so terrible that he eventually had his eye removed.

Any one of those events would have been many peoples excuse for giving up and for their life not turning out how they wanted it to.  Not Munger. Some will try to negate that by saying “well, knowing Buffett helped”. I would note here that by the time Munger met Buffett he was well on his way to his millions (billions)

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