Luck plays an important part in how our finances turn out over time. There is good luck and there is bad luck. Or is there? In reality, we hope good luck finds us and bad luck finds someone else. The truth is good luck and bad luck will find us all, especially when it comes to investing our money. This month deals with this issue and how we can frame it in a way that helps us identify good luck at every turn.
Here is what AI tells us about luck. Luck is a concept describing events or phenomena that occur by chance rather than through one's own actions, skill, or effort. Once again, I am going to disagree slightly with Mr. AI. I believe luck is something we create and I am going to spend the rest of this newsletter explaining how this is true and how you and I can apply it to our lives in a way to make us incredibly lucky!
At first glance one might separate good luck vs. bad luck. Something happens and either your situation gets better or worse. It seems simple, but I would argue, it's not. Here is a truth I have learned studying success. Throughout our lives, all kinds of events happen to us that are neither good nor bad. They are simply events. The next step is how we respond to those events. Bad luck could be turned into good luck!
Let's look at investing for example. When you start putting money in the stock market, it will go up or down on day 1 based on many variables. For some, if it goes up, they got lucky. If it goes down, they got unlucky. Not so fast my friend. There are a few things we want to consider here. What is our time horizon? How much more money will we be investing in the future? What is our risk tolerance?
Let's say stocks went down on day 1 and your time horizon is many decades, you will be putting in thousands and thousands of dollars in the future, and your risk tolerance is high as you have taken the time to understand the history of stock markets. For you, stocks going down could be good luck! You understand that you want to buy as much cheap stock as you can for as long as you can. You got lucky!
The average investor might have responded to that event as bad luck. This is just another reminder on why we don't want to be the average investor. The average investor gets returns far below the stock market returns (mainly because of fees and getting in and out in an attempt to time the market). They are weeping into their beer as they bemoan their situation. You and I got lucky with the same event!
The point I am making is a simple one. Luck is in the eye of the beholder. I will go a step further. Every event can be good luck! Yep, even when it feels oh so bad, it can still be good luck. This is the point where some of you think Finley has finally lost his marbles and should probably seek attention from the medical establishment. I don't think so. Let's take a look at three examples.
Let's say you lose your job. Many people might see this as bad luck. This could be opportunity knocking! It will provide you the opportunity to try something else, maybe doing something you never would have done with that previous "safe" job. Those new changes in your life might just improve your life in ways you never could have imaged when they called you in and let you go. See examples here.
Let's say you go through a divorce because your spouse was unfaithful, mentally and/or physically abusive, downright mean, lacking in empathy, etc. It could be anything and many times it is more than one thing. Rather than see that as bad luck, I would tell you that you got lucky. Why? You have identified the problem and decided to do something about it so your life can get better. That can create a better future!
Let's go a step further. You have someone you love pass away. How can that be good luck? It causes you to take stock of your life and what you are doing with it. You accept the reality that we all die and you become grateful for the many positive experiences you had with that person you loved. It catapults you to make changes in your life, improving it in many ways for decades to come.
I just highlighted three events out of millions that could easily happen if you live long enough. It comes down to how you frame the event. The same event can be seen as bad luck or good luck. The difference comes down to how the human brain responds. Is it really that simple? I say yes and there is probably no better way to understand this than Viktor Frankl's book, Man's Search for Meaning.
That book tells the story of a man who survived a concentration camp while finding purpose in his life. Almost everyone would call that bad luck. Viktor Frankl framed it in a different way. What could he do to make this an opportunity for growth and meaning? He found it by helping others with the talents he possessed. He turned the situation upside down. He found himself in helping others.
Let's circle back as all this relates to your money and your life. The way you get ahead with your money is to see opportunity where others see risk. It comes back to how we frame it. You either see how you can save a good chunk of money and invest it wisely or you see a future of hopelessness as a victim where the odds are stacked against you. Good luck? Bad luck? That is your call.
Let's go back to 1973. You start investing in a fund used to track the S&P 500. In that year, you lost -14.66%. In 1974, you lost -26.47%. At this point, most people would say you had bad luck. I would say it was good luck! You were able to buy a lot of cheap stock for two years. The following two years the S&P 500 went up 37.2% and then 23.84% the following year. Your cheap shares made you a bunch of money!
Let's finish this up with another truth bomb. You and I got really, really lucky being born in America. We hit the lottery the day we showed up. Most immigrants know this to be true, which is why they do their best to reach our shores anyway possible as soon as possible. They are out to make their themselves lucky. We can do the same. Look at every event as an opportunity. YOU are lucky!
