Purposely losing money in the stock market seems like it should be an easy task. It turns out it takes some luck to lose money in the market. The same goes for making it.
Michael Mauboussin defines pure skill-based activities as those where you can lose on purpose. Chess is pure skill. It takes years of learning and practice to become just good at chess. However, a master chess player can lose on purpose to anyone.
Whereas the lottery is pure luck. It’s a random draw. You can pick a series of numbers and hope to lose but there’s always a chance you get lucky and win.
Investing falls somewhere in between pure skill and pure luck because the amount of noise in the system makes it hard to lose (or win) on purpose in the short run.
A good example of this is an interesting experiment run by John Rogers and his team several years ago: Continue Reading…