We can implement strategies and organise our life to maximise the probability and impact of good luck and minimise the probability and impact of bad luck. This article summarises some of the ways we can do this.
Manage luck by inverting the lessons of “risk management”
The four main risk management strategies, and their inverse, are:
- Eliminating risk – removing the risk altogether. The inverse is creating opportunities – exposing yourself to opportunities that were previously not open.
- Reducing risk – taking steps to reduce the likelihood or impact of an event. The inverse is increasing opportunities and making good things more likely.
- Transferring risk – passing on the risk to another party, for example by taking on insurance. The inverse is owning as much of the upside as possible. (For example, being in a band with 3 members rather than 5 members, or being a business owner rather than an employee.)
- Retaining risk – accepting the risk and making the conscious decision to take the risk on. The inverse(?) is keeping the opportunities you currently have.
This framework is useful. But not all risks and opportunities can be identified and quantified. For example, think of “black swans” (highly improbable but impactful events). Black swans can be bad but they can also be good.
Specific strategies for being lucky
- Take a dual attitude to risk – play it safe where there’s potential for ruin, but take the risks necessary to be lucky. This is Nassim Taleb’s “barbell strategy”. The first step to winning is not losing. The second is to swing for the fences where it won’t be catastrophic.
Another way to put it is to bleed, but don’t blow up. Max Gunther, author of The Luck Factor, explains that “The willingness to accept a string of small losses while waiting for a big gain [is] a key trait of lucky men and women in general.”
- Diversify. Don’t just diversify your investments. Diversify your opportunities; your income streams; the risks to which you’re exposed; your identity; your social life; your sources of information; your interests.
- Employ a healthy degree of pessimism. In The Luck Factor Gunther refers to optimism as “underdeveloped pessimism”. He says that one of the counter-intuitive things that he found while investigating lucky people is that by and large they were not optimistic but pessimistic.” He explains that you should “Never enter a situation without knowing what you will do when it goes wrong.” He refers to this as “the pessimism of the lucky.”
- Be nimble, so you can capitalise on opportunities as they arise. The more flexibility you have in your life, the better positioned you are to make the most of the opportunities that come your way.
- Have liquid assets. As Mark Cuban says: “The first step to getting rich is having cash available. You aren’t saving for retirement. You are saving for the moment you need cash“.
- Be selective when making big commitments, financial and otherwise. This is an argument in support of renting rather than owning a house, for example. But it goes further. There’s a reason why many of the most iconic fictional heroes, like James Bond and Sherlock Holmes, are bachelors. Unlike many of us, they don’t have things or people to lose. I’m not saying not to make these commitments (I have), but to be mindful when making them.
- Don’t get fixated on goals – be effectually-minded.
In The Antidote, Oliver Burkeman discusses the benefits of being “effectually-minded”. Rather than focusing on specific goals, it can be valuable to look at the means at your disposal, and making the most of them.
What happens if an opportunity comes your way that you hadn’t considered, but is perhaps better than you were aiming for? Do you pass it by, because it wasn’t your goal? Or do you say “thank you”, redefine your goals (or acknowledge that the opportunity aligns with your higher level goals), and take advantage of it?
- Zig zag and fail fast
Be prepared to move from one situation to another. There are two aspects to this. One, when opportunities arise, be prepared to take them. And two, don’t put too much weight on the sunk costs – the investment that you’ve already put into your current situation. Be future focused.
Freakonomics Radio has an excellent episode titled “The Upside of Quitting”. Steven Levitt explains that failure is probably one of his keys to success. He’s tried lots of things, and failed at most of them. But in doing so, he was able to work out what he was good at.
This doesn’t mean you should bounce between situations. It’s still important to commit to paths that you take. And when you zig or zag, make sure you “ratchet” – that is, preserve the gains you’ve made. If you’re leaving a role, try not to burn bridges.
- Be prepared. Don’t forget the maxims: “the more I practice the luckier I get” and “chance favours the prepared mind”. When the opportunity or event comes along, you don’t rise to the level of your expectations – you fall to the level of your training.
- Place bets on the future. Wayne Gretzky is attributed as saying “I skate to where the puck is going to be, not where it has been”. The point is, don’t plan for the past or even the present. Plan for the future.There may be some similarities between today and tomorrow. But there will also be differences. These differences stem from uncertainty, and that is where the opportunities (and perils) often lie.
- Develop rare and valuable skills. Develop expertise and skills that complement each other, and distinguish you from other people with the same deep level of expertise and skill. Ideally, you want to be one of only a few people with a particular combination of skills.
Try to develop skills that are highly valued in a number of environments and situations. For example, it’s best to be one of the best mathematicians in the country than to be the best ballerina. There are many more valuable applications of mathematics than there are ballerinas. It’s transferrable among domains. Mathematicians are also much less likely to have a “use-by” date, and are not likely to be have career-ending injuries.
This blog is made possible by Fairhaven Wealth and its wonderful clients.
- Put people first. This is a good life philosophy in terms of personal happiness and being a person of integrity. It’s also a great strategy for being lucky.In Power: Why some people have it and others don’t, Jeffrey Pfeffer notes that within many organisations, likeability is more correlated to professional success than competence.
In The Luck Factor, Richard Wiseman observed that extroverted people were more likely to self-report as being “lucky”. He gives several reasons for this. Extroverts tend to meet more people and keep in contact with people. They establish, and maintain, a “network of luck”. This is especially important, in light of Mark Granovetter’s work on the strength of weak ties. The more people we know, with diverse experiences and networks, the more likely these people are to be aware of opportunities that we or our closest ties are likely to be aware of. (Of course, extroversion/introversion is not binary, and everyone is on a scale between the two poles. There are many nuances involved with what “introversion” means. The key point is that being people-focussed is often conducive to good luck.)