Nassim Taleb has a short paper out entitled “Why It is No Longer a Good Idea to Be in The Investment Industry”. The basic idea is simple, and well understood:
As a population of operators in a profession marked by a high degrees of randomness increases, the number of stellar results, and stellar for completely random reasons, gets larger.
Taleb’s point in this paper is not that if you have a large enough number of operators, then by sheer statistics some of them are going to get lucky. Rather, his point is that as the number of operators rises, it becomes more and more likely that any given outperformer was simply lucky. If you live in a world of fat tails rather than thin tails, and if you have, say, 1 million operators, then the lucky few get very lucky indeed, even if they don’t have any skill.
In numerical terms: in a thin-tailed (Gaussian) world with 1 million operators, the lucky few will be about 5 standard deviations away from the mean. In a fat-tailed world, by contrast, the lucky few will be somewhere between 70 standard deviations and 170 standard deviations away from the mean. Since you can’t get to that kind of place by skill, the result is a world where all the most successful operators are simply lucky.
Taleb concludes with advice: “if you are starting a career, move away from investment management and performance related lotteries as you will be competing with a swelling future spurious tail”. But I’d take issue with this on two fronts.
For one thing, the spurious tail is not swelling. As I examined back in June, the hedge-fund world, just like the mutual-fund world, is shrinking: maybe not in terms of assets under management, but certainly in terms of the number of active fund managers. And as the number of operators shrinks, the spurious tail shrinks as well.
But on top of that, there’s really limited downside to becoming an investment manager. If you get lucky, you can make a fortune; while even if you do badly you still get paid extremely well. Indeed, if you take Taleb to heart, you need to do very little work at all, since your fortunes will be largely down to luck in any case. Lots of money for little work and a small possibility of massive riches? Is not such a bad deal.
The professions you really want to avoid, after reading Taleb’s paper, are not financial but rather creative. Where do you find millions of people all trying to succeed against the odds? Just look at how many bands there are, how many aspiring novelists, how many struggling artists. Nearly all of them think that if they create something great, that will improve their chances of success in their field. But given the sheer number of people they’re competing against, and given the fact that the number of breakout stars in each field is shrinking rather than growing, the fact is that just about everybody with massive success will have got there by sheer luck.
Sometimes, the luck is obvious: EL James, by all accounts, is an absolutely dreadful writer, but has still somehow managed to become a multimillionaire best-selling author. Carly Rae Jepsen has a catchy pop tune, but is only really successful because she happened to be in the right place at the right time. Dan Colen might be a fantastic self-publicist, but not particularly more so than many other, much less successful artists. And so on.
The fact is that pretty much every successful novelist, every successful pop star, every successful artist is successful mainly because of luck. Oftentimes there’s skill involved too, but if you look hard enough, you’ll find just as much skill in the millions of unsuccessful strivers as you do in the tiny set of people who make it huge. And when you’re trying to make it as a novelist, your downside is the kind of penury that no money manager ever needs to worry about.
So if you’re entering the arts world, broadly speaking, make sure that creating something wonderful is its own reward, because you’re almost certainly not going to get much in the way of recognition from anybody else. And if you do get recognition, you’ll only get it because you’re lucky, rather than through any particular skill.
This is all quite interesting, but the above suggests that it’s easy being a money manager. I can tell you that is not the case. The assumption used in the piece is that the number of operators is shrinking, so that there is plenty of action left for those who remain.
Not true. For the vast majority of us who are not among those who are at the 70th Standard Deviation of being really lucky, it’s tough out here. Way too many players competing for the same capital. And don’t forget the banks, those (mostly) incompetent idiots that think they can manage all the money in the world for everyone, and will say anything to get it. I compete with them too. A better analysis might be the growth in the number of retail and institutional investment clients versus the growth in the number of hedge funds and RIA operators over the last 15 years. I’ve tried to find these numbers, but so far but no luck. The number of paying investor-clients has leveled off, while those looking to manage money for them has not.
As for being a musician, at least there is the art. For money managers, there is only financial nonsense.
I disagree with your assertion that great achievement in the creative arts is primarily the result of luck. You are leaving out persistence, professionalism, dedication, and more than these, the rare ability to craft a message, carve a sculpture, capture images on canvas, or carry a tune in a way that moves people’s hearts, as well as the strength and stamina to perform in this way consistently. There are both stellar performers and wildly successful bumblers in every field – finance, business, and the arts. But to suggest that “every successful novelist, every successful pop star, every successful artist is successful mainly because of luck” not only devalues the accomplishments of the successful creative person but also implies, by extension, that there is no such thing as greatness – only the celebrity of being chosen. The notion that “you’ll find just as much skill in the millions of unsuccessful strivers” (and by the way, you won’t find as much) has much everything to do with the narrow funnel of traditional media’s curation filters and nothing to do with the extraordinarily talent of so many of those who have made it through. And while I agree that “that creating something wonderful is its own reward,” the idea that in the luck of the draw you’re just as likely to be recognized for creating crap is, frankly, insulting.
I agree with everything but one thing to point out: the finance industry looks less a winner-take-all because of the large survivorship bias.
My idea is mostly about the *future* spurious tail: there are so many track records to compete with.
The number of people vying for the same spot at the top is huge. But as the number of spots at the top increases so does the chance of people making it to the top. The chance being the same for everyone, if proper metrics are studied in each field, a set of metrics stares from the dataset, which explains why only that set of people are at the top spots.
It is easier to study metrics in fields such as finance and corporate, but how do you define metrics in the arts world? You are very right in stating this truth. How do you define the success of an art through some metric. However, there is a possibility that something does define why we like a work of art. Symmetry maybe. The Golden Ratio?
There are a lot of professions out there, where quality is measured by quantifiable numbers: fewer accidents, number of successful prosecutions, growth in sales, shrinking losses, fewer bugs, etc.
Creative fields…you have aesthetic measurables (I’m sure someone will get a laugh out of that, recalling when a client asked for fewer colors, angles, etc.)
The world frequently recognizes acme for what it is, about as often as it identifies “crap” as acme. I also believe that most people understand that life’s a crapshoot, but that you’re never going to win the lottery if you don’t play it.
To sum it all up, just watch “Exit Through the Gift Shop” and enjoy the laughs.
A full perusual Nassim’s book would have been order because there is a chapter titled “Loser takes all” that is most relevant to this discussion. The winners in any given industry tend to take all of the winnings be shear fact that they have won. This creates a positively reinforced upward spiral. An actor gets seen on some B rated series or somewhere becomes the next big thing simply because someone saw him/her and wants them to work for them. This is how it works in art and in finance (and honestly in my experience everything). The one thing that I think that you have missed in this article is the sampling size. And once again if you had read Nassim’s book “Fooled by Randomness” you would have been at least exposed to it. If you can stick out what ever you are doing for long enough your odds of “making it” are increased, this is where the skill hard work crowd tends to jump in. It is not all luck nor is it all hard work. It is a blend of both. To weed out the luck factor one must stay in the game and this is where most people fail. They stay with it for a year and maybe they can push themselves some more, but that is about it. The problem with most artists, entrepreneurs, speculators is that they don’t like what they are doing and can’t take the losses (financially and emotionally) that are involved in industries with higher variances. Additionally our society tells us that if we get educated and work hard we will make a gazillion. This is a complete lie and totally counter productive. The only way that we will make a gazillion is to stay in the game and if you read Market Wizards you will find that most of the big players are more interested in staying in the game than the big score. One last note, staying in the game means living small. Student loans, babies and houses don’t help you keep your expenses at the place that is necessary to stay in the game (but they sure feel good).
Good article Felix.
Not buying the luck theory. Luck in itself has a lack of understanding implied. Honestly, we cannot explain why some things happen. To put these events into a black box labelled “Luck” is plumb dumb. In the past, unexplained events were caused by the gods (earthquakes, lighting, health issues, etc.) As enlightenment prevailed, logic followed and luck disappeared.
Regardless of the genre, success involves acceptance by peers, society. The swings of human emotion distort the equation, complicating luck. Look closer and the randomness is still predictable. Perhaps we should take the time to enlighten ourselves and change our luck.
Felex: Both you and Nassim forget about other factors in career success like having well placed contacts that can get you your first commissions or prime exposure for your product. The role of word of mouth among wealthy collectors who wanted the next Monet, Picasso, of Van Gogh, and group coordination to establish rival movements in fields like painting and sculpture and to get themselves noticed in the arts section of newspapers and magazines. They knew how to know the “right people’
A few men who were avid painters, knew and sometimes supported each other and even established their own exhibition to rival the officially supported “salon” of the French state 19th century started the Impressionists movement of the late.
That approach was used successfully by the 50s, 60s and 70s by New York school of abstract expressionists, minimalists, op artists (just to try to recall a few of the many alternative movements that sprang up then), and they were able to market themselves as the avant-garde to gallery owners and the established collections like MOMA and the Whitney. They knew the importance of publicity, the need for well healed first patrons who styled themselves the spearheads of the future. This worked well for the famous decorators and architects as well. Any other practitioners in the fields don’t matter much, no matter how skilled they are. And the spearhead movements know how to kill off rivals for the patron’s funding. In the modern world, with enormous numbers of skilled practitioners, the ability to make the rival irrelevant and marginal is as important for success and the ability to be noticed at all.
The New York school knew that if they could find some buyers for their work among the wealthy and well connected social sets. Those buyers would have an interest in touting their work as a protection for their own investment and to establish their own reputation as prescient buyers. There is a good deal of psychology involved and catering to the vanity of the buyers was as important as the products. There is more than a touch of the “Emperor has no cloths” psychology at work in the arts. The role of critics and publicist is an important part of critical acceptance and that is a matter or bluff and swagger sometimes. The critic, Clement Greenberg, set himself up as the maker and adviser of men like Jackson Pollock.
The public never trusts its own taste or judgment. In some ways that is right. They can always use some educating. But they can also be dis-educated by an aggressive media campaign. Media campaigns can also be crooked and a matter of slipping the right bribes into the right hands.
The famous modern artists may have had an appreciation of the world of politics and payoffs. Another thing to be remembered is that mass psychology can go a long way in training the market to accept certain products versus others. Having the right venue is as important to the appreciation of a work of modern art as having the right ideas at the right time.
In the history of critical acceptance of art products, the times change and what once commanded high prices can loose favor. A great deal of the arts production of the 19th Century – prior to the modernist movement – was slated for the trash bins, basements and attics of homes and museums when the modern arts started to dominate the galleries. I have to admit, I agree that some of the work that ended up in museum basements probably belonged there but the artists were well paid at the time.
But all that is needed to get that stuff out of the basements is the right critic, the right gallery and a few media articles to get people looking at it again. A lot of the work in the Musee D’Orsay was in the “basement” until the museum was built dedicated to it. The stuff is old enough now it has historic creds.
Once the stuff has a high price tag today – it tends to sell itself.
As Branch Rickey said, “Luck is the residue of design”.
The beauty of randomness is that it is not predictable. Artists understand this better than financial professionals, and are more likely to embrace randomness. If only there were more artists in the financial world, then we might find more level headed thinking.
Mr. Salmon – Would you mind pulling my earlier comment? I realize now I made some mistakes by submitting it after a word check that corrected it incorrectly and I didn’t notice. Here is a better version with a few additions. These small letters are hard on my eyes.
Nassim did not mention other factors for career success in the arts: like having well placed contacts that can get you your first commissions or prime exposure for your product. The role of word of mouth among wealthy collectors who want the next Monet, Picasso, of Van Gogh, and group coordination to establish rival movements in fields like painting and sculpture and to get themselves noticed in the arts section of newspapers and magazines are very important. The most successful knew how to know the “right people” As much as Kincaid is despised by serous artists he knows how to work the system and he did it without the high brow critics. Kincaid knows the new market rules even if the work is garbage. Damien Hirst knows them too. He knows the role of massive publicity. Many modern artists don’t actually know how to draw well. Traditional “Old Master” skills have become irrelevant. You will only see them in amateur shows at the local level.
A few men who were avid painters, knew and sometimes supported each other and even established their own exhibition to rival the officially supported “salon” of the French state, started the Impressionists movement of the late 19th century. They formed a coordinated attack and were mutually supportive of one another. American painters did the same thing in imitation of them. They were also able to create rival cultures to the mainstream. That isn’t done as much today because there are few coordinated or consistent themes that can be pursued and there is hardly anything that is done in the arts that hasn’t been done before. They do not think “movements” or broad philosophies because there really aren’t any now.
The “school” approach was used successfully in the 50s, 60s and 70s by New York artists that practiced a fast changing variety of abstract expressionisms, minimalism, op and pop (just to try to recall a few of the many alternative movements that sprang up then), and they were able to market themselves as the avant-garde to gallery owners and the established collections like MOMA and the Whitney. They knew the importance of publicity and the need for well healed first patrons who styled themselves the spearheads of the future. That always worked well for the famous decorators and architects as well. Any other practitioners in the fields don’t matter much, no matter how skilled they are. And the spearhead movements know how to kill off rivals for the patron’s funding. In the modern world, with enormous numbers of skilled practitioners, the ability to make the rivals irrelevant and marginal is as important for success and the ability to be noticed at all. They have to be accepted by major shows like the Venice Biennale. I think that’s the only big show now.
Art has always needed the patronage of elites and they use it to establish social prestige. The big prices were paid for prestige and bragging rights – not the quality of the work.
Some modernists of the late 60s and 70s ridiculed the markets appetite for durable art goods by making their work out of impossible to preserve materials like asphalt and even mayonnaise. Cristo destroys the original and only sells prints. Conceptual art was the rejection of the hard goods business of art but he still needed big money to fund the actually work.
The New York school knew that if they could find some buyers for their work among the wealthy and well connected social sets. Those buyers would have an interest in touting their work as a protection for their own investment and to establish their own reputation as prescient buyers. There is a good deal of psychology involved and catering to the vanity of the buyers was as important as the products. There is more than a touch of the “Emperor has no cloths” psychology at work in the arts. The role of critics and publicist is an important part of critical acceptance and that is a matter or bluff and swagger sometimes. The critic, Clement Greenberg, set himself up as the maker and adviser of men like Jackson Pollock. The New York Times art critics and art magazine reviews are important.
The public never trusts its own taste or judgment. In some ways that is right. They can always use some educating. But they can also be dis-educated by an aggressive media campaign. Media campaigns can also be crooked and a matter of slipping the right bribes into the right hands. Galleries are notorious practitioners of conflict of interest. They are salesman and one shouldn’t trust their judgment necessarily.
The famous modern artists may have had an appreciation of the world of politics and payoffs. Another thing to be remembered is that mass psychology can go a long way in training the market to accept certain products versus others. Having the right venue is as important to the appreciation of a work of modern art as having the right ideas at the right time. Work found in a gallery is going to look a lot more attractive than something seen in a barn behind a lot of rubbish.
In the history of critical acceptance of art products, the times change and what once commanded high prices can loose favor. A great deal of the arts production of the 19th century – prior to the modernist movement – was slated for the trash bins, basements and attics of homes and museums when the modern arts started to dominate the galleries. I have to admit, I agree that some of the work that ended up in museum basements probably belonged there, but the artists were well paid at the time. It’s hard to tell from photgrahs but many of the paintings on Mrs. Astors famous ballroom may have been lost because they weren’t considered good art by the turn of the century.
But all that is needed to get that stuff out of the basements is the right critic, the right gallery and a few media articles to get people looking at it again. A lot of the work in the Musee D’Orsay was in the “basement” until the museum was built dedicated to it. The stuff is old enough now it has historic creds. But some of it is still awful.
There really isn’t any such thing as a right answer in the arts. The galleries and critics just have to come up with the right excuse for it.
Once the stuff has a high price tag today – it tends to sell itself. .
I reiterate my comment from the WSJ blog, that Felix supports:
Taleb would have been “lucky” had US Treasuries fallen per his call when 10 year yields were > 3.5%.
Seems like sour grapes math to justify his exclusion from the top. Also questionable is the linearity assumption of N, as the population of funds, managers, and market participants does contract. This consideration reduces the “spurious tail” effect he laboriously illustrates.
I agree there is more “luck” associated with succeeding in the arts, but this is primarily due to the fact that finance requires a counterparty. Were the successful “lucky” to find counterparties?
I present you an art : making skies that can not be ruled except by intellectual property.
Pray. Muses? God says, “liar anxiety Pontitianus USA deceits lottery Perish reference
working foretell unworthy hungering citizen extricate
Read ears inhabited succession chose renowned adorning
enchantment incorrect brought whomever stuck disclose
poison claim stretch “
I was going to listen to classical music to get a taste for it. God said it was poison. I literally got melodies from God, if you download LoseThos burn a CD and boot it. Log-in as user and play songs.
and threw over Don Quixote’s shoulders a
large mantle of the finest scarlet cloth, and at the same instant all the
galleries of the court were lined with the men-servants and
women-servants of the household, crying, “Welcome, flower and cream of
knight-errantry!” while all or most of them flung pellets filled with
scented water over Don Quixote and the duke and duchess; at all which Don
Quixote was greatly astonished, and this was the first time that he
thoroughly felt and believed himself to be a k
Did the luck come with everyone since their births or was it just, in another word, *FATE*?
American band Kansas included their greatest hit “Dust in the Wind” to fill an album. Did they get lucky? Maybe. Or maybe they were there during years making good music until all that craft crystalized.
I don’t believe that’s just luck. I think that musicians and the public have different ideas of what a good song is. Nobody knows the exact formula to create a hit, but some people seems to have a better grasp than the rest and produce many.
“The fact is that pretty much every successful novelist, every successful pop star, every successful artist is successful mainly because of luck.”
Music (just like, I would claim, all forms of creative work) is very broadly classified into the categories of popular, folk, and art. Pop stars are subject to the whims of the masses, and as such are required to rely on luck as much as skill. That seems to be what you are primarily rallying against.
Musicians in other genres are far less subject to this. A classical (i.e., art) musician’s success is much more rooted in his or her skill. It’s hard to imagine how one could produce a better recording of Bach’s 6 suites for cello by luck.
And of course, nobody is required to do only one thing with their lives. Yo-Yo Ma records many great classical albums, like Bach’s suites, but also does pop music collaborations. Actors do this, too: Anthony Hopkins will do serious (art) movies, and then do a silly (pop) movie like Thor. There is no reason to put all your eggs in one basket.
“So if you’re entering the arts world, broadly speaking, make sure that creating something wonderful is its own reward,”
This is a funny thing to mention at the end — I assumed it went without saying. Why else would you do something?
“because you’re almost certainly not going to get much in the way of recognition from anybody else.”
This is basically true in every field.
In Thinking, Fast and Slow, Kahneman says that outcome = skill + luck. It’s just that it’s impossible to tell how much of each. However, he notes that an exceptional outcome is highly likely to include a large measure of luck. The skill component does indeed include persistence, talent, connections, etc., but that is almost never enough to result in a long-tail event.
I really wonder how many of the people commenting here work in the arts. Or finance, for that matter. I’ve worked in both and I have to agree with Felix that there is a far greater element of luck behind success in the arts than there is behind success in finance.
Alex, I am a classical musician – a singer. I am no less skilled than many singers who have “made it big”: I studied at a top conservatoire, of which I am an associate, I have a degree in music and years of practical experience. But I have never had the sort of success as a performer that some of my contemporaries have. That is partly to do with choices that I have made, but also partly to do with luck. Being in the right place at the right time, meeting and getting on with the right people, making a fashionable sound…..all of these contribute to success in the arts, and all are really down to luck rather than skill.
I’ve never been particularly successful in finance either, but I would directly attribute that to my own decisions – the fact that I wanted to have time for my family and time for my singing, and the disgust I felt at the sacrifice of personal principles that seemed to be required in order to reach the dizzy heights of telephone-digit salaries and vast bonuses.
Congratulations on having a soap box for unoriginal and contentious generalities.
Was it luck that caused his disastrous call to short long-term treasuries in Feb 2010 because of U.S. policymaker mistakes? That trade blew-out — literally lost -97% of your money if you were short the Vanguard Long-Term Treasury ETF (EDV).
If the distribution is a normal one, there will be just as many unlucky losers as lucky winners – and certainly the ‘London Whale’ illustrates this. However, if the curve is skewed – perhaps as Nassim says because of a high survivorship bias (although I’m not sure if he means on an individual or corporate level here, it could be argued there is some asymmetry here) – surely this means the efficiency of the market will be reduced, making it more likely that odd events pop up and exacerbate the effect of fat-tailed ‘lucky’ winners?
By the way, nice to find your blog again Felix! Politics at Reuters?
In the field of art, the “it’s all about luck” argument is one that is routinely made by bad artists. The counter-argument is, simply: Shakespeare, Beethoven, Michelangelo, Hitchcock. Critics and the general public have had many, many years to review their work, and the strong consensus is: yes, they really were better, not just than their contemporaries, but nearly all artists before or since in their respective fields, and absolutely deserved the success they enjoy.
It is always true that a certain number of incompetent people rise to the top of the artistic world, at least on a temporary basis. I am confident that even the Baroque Era had its equivalent of Ashlee Simpson. But sooner or later there is a shaking out, and incompetent artists fall while the competent are left standing. Incompetent artists may ascend through good connections and passing fads in popular thought; but those do not sustain a reputation the way that skillful, compelling art does.
Unfortunately, that process may take many years. The art world was famously slow in recognizing Van Gogh; and Caravaggio was not fully appreciated until recently, centuries after his work. But once recognized, the reputations of outstanding artists tend to endure.
Even in light of artists whose exceptional skill is not seriously contested by either critics or the general public, how then does the “it’s all about luck” argument still hold sway? I would suggest two possibilities.
The first it that this is a favorite argument of collectivists; if success is all about circumstances, than individuals hold no special claim to their work, and there is therefore no obstacle to collectivizing everything. This argument has been circulated for years with respect to wealth (e.g., the now-infamous “you didn’t build that”), and it’s not surprising to find it applied to artistic achievement as well.
As an aside, while this argument is frequently applied to wealth, and increasingly to artistic achievement, I don’t know that I’ve ever heard it applied to political careers . . . or to journalism. I don’t think I’ve ever heard a politician admit that it wasn’t her ideals, vision, and courage that got her elected into office, it was just dumb luck. Along the same lines, I don’t think I’ve ever heard a journalist admit that he wasn’t any better or worse than any other aspiring journalist out there, just luckier (and better connected). This is very frequently an argument people apply to fields other than their own.
The reason artists use this argument so frequently in their own field, however, is simpler: it’s an easy explanation for why they haven’t been successful. “It’s all about luck”, they say, instead of admitting the possibility that maybe people just don’t like bands with awful guitars and crashing drums and angry screaming lead singers. “It’s all about luck”, they say, instead of admitting that maybe The Beatles really were that good.
It is part of a cult of mediocrity that has engulfed the visual art industry, in particular, for years; arguing that there is no connection between skill and success, while simultaneously exploiting that lack of connection to sell badly overpriced novelties, at the same time denigrating artists who strive for real excellence as being outdated. The situation is somewhat better in the music industry and the film industry, but even in those industries, there is an undercurrent of resentment against success, and a general sense that those who succeed must be either lucky and/or sellouts who compromise art for the sake of sales.
The argument against all of the above is simple and straightforward: we will never get good art unless we emphasize the importance of skill. Yes, luck and circumstance and popular opinion all play a role, but unless skill is emphasized, we will get nothing worth seeing or listening to. Unless we expect excellence, we will descend into a world where art does not rise above the elementary school level (we’re more or less there, sadly) and where music and film making does not rise above the middle school level. If we want art and music worth having, we absolutely must emphasize the role of skill in the success of artists.
what utter presumptuous bullshit. who the f- are you to say the author of a book, one of a trilogy that captured the public’s attention, whether you like it or not, can’t write and that an artist that has accomplished as much as dan colen with the indisputable traditional extent of skill underneath the admittedly sometimes conceptual hijinks is solely due to luck. the only lucky thing is that you are published all the time on reuters! ha, and this is from a sometimes fan!
It’s amazing how many of you have failed to see the point.
“The counter-argument is, simply: Shakespeare, Beethoven, Michelangelo, Hitchcock…”
Nobody is claiming they had did not have talent, the point is sample bias. You look at these successes and think they would have succeeded no matter what, because they were great, but you cannot see their equals or betters that failed because of bad luck.
De gustibus non est disputandum.