Luck

What is luck? How to be lucky?

My girlfriend presented 3 points:

1) Be Positive - (no matter what happens. Bad luck may be good luck in disguise, so, don't worry :)
2) Be Open - (to new experiences, so that there is a higher chance of getting good luck)
3) Be Prepared - (to seize the opportunity once good luck happened)

I like her presentation: simple, concise, and it's similar to my philosophy. Though I had, as a trader, distilled the essence of Luck into a precise mathematical concept. 

Luck is a Bell Curve. 
Understand Bell Curve, and you will understand EVERYTHING about Luck.

Imagine a Normal Distribution curve with "Returns", i.e, Luck, on the X-axis and "Probability" on the Y-axis. On the right tail end of the curve will be very high Returns (Good Luck), but with a very low probability of happening. On the left tail end will be very high negative Expected Returns (Bad Luck), but also with a very low probability of happening. The bulk of the "Bell" will be centered on Zero Return, which corresponds to the peak of the curve. 

So what does the Bell Curve tells you about Luck, and how to be lucky? Plenty.

1) Luck is Mean-Reverting

That means, sometime you will have good luck, sometime you will have bad luck. Over the long run, the extremes will neutralize each other and the Net Returns will still be ZERO, as defined by the Bell Curve. Understanding this, and you will have a stoic attitude towards instances of good luck or bad luck.

Everything is a cycle. Good Luck will be followed by Bad Luck, Bad Luck will be followed by Good Luck. But in the long run, it doesn't matter. So why worried about it? :)

2) Edges will shift the Luck Bell Curve

Successful people make their own luck. How? By finding advantages / edges! A trader's definition of an "edge" is that it's something provides Positive Expected Returns, i.e. the peak of the Normal Distribution curve is no longer centered at Zero, but at some positive values. The curve is now shifted to the right!

People who are successful pursue their competitive edges consciously, relentlessly and continuously. It is what it means by "making one's own luck". Once they found their own edges, they will be lucky in the long run! It is inevitable! 

To find an example of a positive edge, one needs to look no further than the P&L statement of a casino. 

3) Control / Limit your Risks 

Beware of the Black Swans. Think of every possibilities that might cause your downfall in case you have bad luck. Take steps to prevent or minimize these risks. 

The Luck Bell Curve have much fatter tails and much larger negative returns than you think. Highly recommend Nassim Taleb's books. 'Nuff said.

4) Law of Large Numbers

Once you found something with a positive edge that you can do, keep trying. Don't give up because of temporal bad luck or setbacks. The more times you throw your dice, the more likely you will realize your positive expected return, i.e. the more likely you will get lucky. Remember:

It is inevitable. :)