Luck

Posted by – June 28, 2010

My luck was accentuated by my living in a market system that sometimes produces distorted results, though overall it serves our country well. I’ve worked in an economy that rewards someone who saves the lives of others on a battlefield with a medal, rewards a great teacher with thank-you notes from parents, but rewards those who can detect the mispricing of securities with sums reaching into the billions. In short, fate’s distribution of long straws is wildly capricious.

Warren Buffett, in his letter pledging 99% of his wealth to charity.

It’s a fascinating paragraph — my favorite of the whole letter — and I can’t stop thinking about it. He’s right, of course, in that the acts of saving lives on the battlefield and challenging and shaping the intellect of our youth are far nobler than detecting an over- or under-priced stock with the consistency that Buffett’s demonstrated, and that those acts are not rewarded financially to the extent that they ought to be. But there are also far more people capable of those acts than Buffett’s.

What’s more, if the same number of people who have saved a life on the battlefield could consistently detect and act upon the mispricing of securities, securities would not be mispriced. Buffett’s fortune — and I’ll agree that luck is involved — is not so much a factor of the particular skill with which he was born, but in fact a direct result of the lack of that skill in others. In Buffett’s case, it’s not so much that he drew a long straw; it’s that everyone else in the game drew a short straw.

It’s neither here or there, really, and it has nothing to do with the fact that this man is a brilliant philanthropist and human being, but the logic in that paragraph doesn’t quite follow, right?

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