VALUE: After Hours (S07 E37): Reproducible Success vs. Luck-Driven Wins

During their recent episode, Taylor, Carlisle, and Luca Dell’Anna discussed Reproducible Success vs. Luck-Driven Wins. Here’s an excerpt from the episode:

Tobias: That’s what’s been holding me back so far. [chuckles] This is a related idea. But one of the ideas from Winning Long-Term Games, is this reproducible success strategies, which I love. I like the way you frame it up that if it’s adopted by 100 people, it leads to success for most or all of them, rather than requiring luck or leaving many casualties behind. [chuckles] Can you perhaps expand on that a little bit?

Luca: Yeah. So, this is something that the reproducible success strategies. It’s something that came up to me talking with investors and talking with entrepreneurs who are always saying, “I’m doing okay. I’m doing good, but there is someone else that is doing much better.” I’m always telling them, “Are they doing better in a way that’s reproducible or not?” Because if they’re doing better in a way that’s reproducible, which means if they do it again and again and again, they always get great results, then you should learn from them. But if instead they’re doing better than you in a way that’s not reproducible, then you should absolutely not learn from them. You should ignore them.

Tobias: Do you have practical examples of that?

Luca: Yeah. So, for example, imagine that– I think that in the book I make the example of, imagine that the three of us, we go to the casino and we all play the roulette. But we play with some weird strategies. So, for example, Tobias, you always play on the red, and Jake only plays on the even numbers, and I only play on the 36, for example.

And then, let’s imagine that maybe Luca and Jake will lose a lot of money, and Tobias makes a lot of money. Does it mean that Tobias strategy was good? Absolutely not. It was not a reproducible strategy. And if Tobias, we went the second night, maybe the results would be different.

Now, the thing is that this is banal, because we know about the rules of roulette. It’s clear that our three strategies were stupid or random and non-reproducible. However, imagine that we are talking about stocks. Imagine that we all invest randomly on stocks and we have weird rules such as Tobias only invests in-

Jake: Chico’s.

Tobias: Companies that go down. [laughs]

Luca: Yeah. In young entrepreneurs that have a background in food and beverage, whatever. And Jake, you only invest in, I don’t know, in Norwegian entrepreneurs. And I, I only invest in entrepreneurs that never listen to earning calls. And after one year, it turns out that Tobias strategy, for example, was good.

Now, this example is analogous to the example of the casino roulette. They were random strategies, but somehow when we’re dealing with stocks, it’s a bit more plausible that Tobias strategy of only investing in entrepreneur that come from a food and beverage background, whatever, was much better. But we should recognize that again, it was not reproducible.

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