I’m skeptical of the ‘enormous amounts of noise’ claim
Trivially, look at the wealth of Bill Gates vs Steve Jobs. Most of Peter Thiel’s wealth relative to other past tech CEOs comes from one great hit at Facebook. Even entrepreneurs who have succeeded at past VC-backed startups are only moderately more likely to succeed (acquisition, IPO, large size) than new ones. Financiers vary hugely in lifetime career success based on market conditions on Wall Street when they finished school, on which product groups have ups and downs when, and which risky bets happen to blow up before or after they move on.
Within a given size of social circle and selective filter, happening to have the right friends with the right contacts (Jobs and Wozniak) at the right time is critical. Who else produces a similar startup at the same time and how good are they? Do key patents and lawsuits get decided in one’s favor? What new scientific and technological innovations enhance or destroy the position of one’s company?
At a smaller scale: when do you fall in love and get married? What geographical constraints does that place on you? Do you get hit by a car or infectious disease or cancer, and when? Do you get through noisy hiring processes in tight labor markets, e.g. tenure in academia, getting a first job on Wall Street? Do you click with the person deciding on your medical residency of choice?
So Jobs ended up with what, $6.7 Billion, http://www.forbes.com/profile/steve-jobs/ making him the 99.99999th percentile among Americans, after not bothering to become the 99.999995th percentile by cashing some options. Meanwhile, Gates started at the 98th or 99th percentile instead of the 60th or 80th percentile and, with a much higher IQ and much greater strategic ability but somewhat lesser over-all talent, rose by the same factor. The idea that Jobs had unusual luck by having one highly technically skilled friend (given Jobs’ social skills no less), and by only having to compete head to head with Microsoft, is also faintly amusing. Point mine, I think. Regarding Gates, yes, it’s true that a key lawsuit hurt his net worth, but not his wealth rank-order.
Thiel likewise would only have a billion or two instead of three or four (depending on estimates of his non-public holdings like Palantir) without Facebook, lowering his average annual investment returns during the last decade, from about 50% (vs. nothing for the market) to about 40%. This fits with my general impression, and that of the world, that there’s a significant absolute amount of luck in investment returns, enough to impact expected outcomes by a factor of 2 or so over a decade and thus a factor of 4 over a career. That makes a big impact in a retirement plan, but not in a business career.
While we’re on VC returns, if I’m not mistaken, the best VC firms often have >50% hit rates, and there aren’t all that many VC firms.
On a smaller scale, luck determines a very large part of life outcomes, but simply put, that’s because most people do nothing with their lives, they simply drift on the wind and let social forces blow them around. If you control for the impact of one’s effort applied to decisions, by not trying to make decisions in any deliberate manner but simply going with social pressure, you unsurprisingly find that random factors and not effortful decisions are the major driver of life outcomes.
Trivially, look at the wealth of Bill Gates vs Steve Jobs. Most of Peter Thiel’s wealth relative to other past tech CEOs comes from one great hit at Facebook. Even entrepreneurs who have succeeded at past VC-backed startups are only moderately more likely to succeed (acquisition, IPO, large size) than new ones. Financiers vary hugely in lifetime career success based on market conditions on Wall Street when they finished school, on which product groups have ups and downs when, and which risky bets happen to blow up before or after they move on.
Within a given size of social circle and selective filter, happening to have the right friends with the right contacts (Jobs and Wozniak) at the right time is critical. Who else produces a similar startup at the same time and how good are they? Do key patents and lawsuits get decided in one’s favor? What new scientific and technological innovations enhance or destroy the position of one’s company?
At a smaller scale: when do you fall in love and get married? What geographical constraints does that place on you? Do you get hit by a car or infectious disease or cancer, and when? Do you get through noisy hiring processes in tight labor markets, e.g. tenure in academia, getting a first job on Wall Street? Do you click with the person deciding on your medical residency of choice?
We could quibble, but I’d leave it at that.
So Jobs ended up with what, $6.7 Billion, http://www.forbes.com/profile/steve-jobs/ making him the 99.99999th percentile among Americans, after not bothering to become the 99.999995th percentile by cashing some options. Meanwhile, Gates started at the 98th or 99th percentile instead of the 60th or 80th percentile and, with a much higher IQ and much greater strategic ability but somewhat lesser over-all talent, rose by the same factor. The idea that Jobs had unusual luck by having one highly technically skilled friend (given Jobs’ social skills no less), and by only having to compete head to head with Microsoft, is also faintly amusing. Point mine, I think. Regarding Gates, yes, it’s true that a key lawsuit hurt his net worth, but not his wealth rank-order.
Thiel likewise would only have a billion or two instead of three or four (depending on estimates of his non-public holdings like Palantir) without Facebook, lowering his average annual investment returns during the last decade, from about 50% (vs. nothing for the market) to about 40%. This fits with my general impression, and that of the world, that there’s a significant absolute amount of luck in investment returns, enough to impact expected outcomes by a factor of 2 or so over a decade and thus a factor of 4 over a career. That makes a big impact in a retirement plan, but not in a business career.
While we’re on VC returns, if I’m not mistaken, the best VC firms often have >50% hit rates, and there aren’t all that many VC firms.
On a smaller scale, luck determines a very large part of life outcomes, but simply put, that’s because most people do nothing with their lives, they simply drift on the wind and let social forces blow them around. If you control for the impact of one’s effort applied to decisions, by not trying to make decisions in any deliberate manner but simply going with social pressure, you unsurprisingly find that random factors and not effortful decisions are the major driver of life outcomes.