Is investing a game of skill or a game of luck?
If you toss a coin, the chances of it being heads or tails are equal. Therefore, trying to predict in advance whether a flip of a coin is a head is a gamble because the result comes down to pure luck.
Chess on the other hand is a game of skill. The rules for the game are well defined and it would be very difficult for someone to beat a skilled opponent based purely on luck. The more skilled you are, the higher are your chances of success.
Many of us have heard of the common phrase time in the market beats timing the market. If we unpack this, it means that it is very difficult, no matter your level of skill, to accurately predict what the market will do in the short term. Luck plays a much greater role than skill in short term performance.
But there is a second part of that phrase: time in the market. Which tells us that, if you are disciplined in our investment strategy – which is a skill – over the long term you will find investing success.
It’s not that you simply give up and leave all your investments to chance. You must take advantage and play the long-term odds in your favor. This is why investing falls somewhere in the middle of skill and luck, but probably skews closer to the luck side of the spectrum.