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Lucky Fools

Steve Abramowitz

I FLUNKED MY FIRST two interviews for an academic job. Fifty years ago, I didn’t make the grade at the University of California, Los Angeles, or the University of California, Berkeley, either of which would have made a fitting classroom for an unseasoned but game New Yorker.

Instead, I prevailed at the University of California, Davis, the agricultural mecca of the statewide system. I was sold when I looked at one of those old gas station maps and saw that I’d be close to San Francisco.

At a welcome party for new faculty held three weeks after my arrival, I met the woman who became my wife and has been at my side for 39 years. You undoubtedly have your own stories of synchronicity. How much of a role does randomness play in our life? And why are we so quick to dismiss it out of hand?

I made my first and best real estate investment when mortgage interest rates were the highest in modern history—17%. For four decades, this exploit became the bedrock of my self-esteem as an investor and carried me through times of despondency and failure.

But just last week, a passage in market philosopher Nassim Nicholas Taleb’s book Fooled by Randomness upended my self-assurance. “Lucky fools do not bear the slightest suspicion they may be lucky fools,” he wrote.

I had denied this dagger all these years despite the string of improbable events that preceded that first real estate purchase. Could I be one of Taleb’s prideful fools? Might you?

In 1980, Federal Reserve Chair Paul Volcker resolved to quash the prolonged high inflation of the 1970s with a stifling monetary policy that induced a recession. Sound familiar? Back then, few American families could afford a conventional loan, forcing builders to stockpile inventories of unsold homes. Staggering under the weight of short-term construction loans reaching 24% and facing bankruptcy, companies were offering creative financing to lure homebuyers.

As happens with many defining business ventures, I stumbled into real estate ownership quite by accident. Over lunch with a broker friend, my wife Alberta was enticed by the virtues of real estate limited partnerships.

At the time, people were rushing to pool their money to buy shares of a real estate enterprise, much as they would with a mutual fund. Small investors were attracted by the generous tax benefits and the promise of no management responsibilities and no liability, which were assumed by the general partners who ran the business.

Alberta’s parents had missed out on the late 1970s boom in Los Angeles real estate. She wasn’t about to let another opportunity fly by. I shuddered at the prospect of losing control over my investment and trusting a remote management team to align my interests with its own. From my vantage point, the limited partnership was the beneficiary of an unsustainable and risky real estate bonanza.

Besides, at age 36 and building a career as a research psychologist, I was damned if I was going to bow at the altar of my father’s real estate mantra and invest in rental properties. Alberta carried no such baggage. We agreed on a compromise. I would look for a property to invest in, but it would have to be our own.

Some weeks later, I came across a classified ad in the real estate section of the Sacramento Bee announcing a financing plan consisting of 30% down with the balance to be paid in 60 equal monthly installments at no interest. No interest? A phone call filled in the blanks.

A local builder had slowly sold out his suburban condominium development except for the three model apartments. He needed more cash for an assisted living project and was having trouble unloading his properties in the current astronomical interest rate environment. He wanted to sell the units to an investor and rent them back as his firm’s offices for two years.

Dare I believe my good fortune? I would have to put down 30% for an investment loan anyway, even if I could qualify. No interest and no points. No anxiety-ridden pressure to prep the condos and find a renter. And we would own the properties free and clear in five years.

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I told Alberta about the scenario and she immediately understood we had to act quickly. She’d received a modest inheritance a few months before, so we had the cash to buy all three. We arranged to view the condos and, not wanting to alienate the seller and future renter, made a reasonable offer. It was accepted and the transaction closed in three weeks.

I was in shock. I had walked almost blindly into a small goldmine. I had vowed in my youth never to follow in my father’s footsteps. Instead, I became a professor, half in spite. My brother was the trouper and I was the renegade. Yet here I was making a sweet real estate deal.

 A few days later, I called my father and related the story.

“So, Stevie, how many did you buy?”

“All three.”

“Good, you did the right thing. You’ll never see something like that again.”

It wasn’t all wine and roses. Real estate values dropped 25% between 1983 and 1988, so we were underwater for several years. The stock market was going viral and I wondered for a long while whether I’d made the right decision.

Those limited partnerships? Beset by so much blind faith and gunslinging, they crashed like other investment comets of yesteryear. The concept has survived but no longer enjoys the same panache. It was the crypto of that era.

An innocent lunch, a wife whose parents didn’t cash in, a son reluctantly agreeing to reclaim his family’s real estate legacy, a builder who wanted to move on. How much is our destiny in investing and in life tossed about by chance? Was it all serendipity? Our lack of control makes us anxious and too easily deceived by the Protestant ethic that depicts a productive life as a straight line, from school to job to family. The journey is more jagged than that.

Taleb wrote, “The simple inability to remember the true sequence of events but a reconstructed one will make history in hindsight appear more explainable than it really was. In most circumstances fraught with a high degree of randomness one cannot really tell if a person has skill.”

I have tried to find the same 0% financing plan in every recession since the 1981-82 downturn. My father was right, I have never found another. Does my inability to repeat the escapade confirm that I was merely lucky? I’ll never know if what I accomplished was due largely to skill or a whim of chance. In many of your own triumphs and failures, neither will you.

Steve Abramowitz is a psychologist in Sacramento, California. Earlier in his career, Steve was a university professor, including serving as research director for the psychiatry department at the University of California, Davis. He also ran his own investment advisory firm. Check out Steve’s earlier articles.

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macropundit
macropundit
1 month ago

Taleb’s insinuation that people are blind to luck I think is off the mark. Not least because recipients of bad luck –virtually everyone at one time or one aspect or another– can’t miss it. The older you get the more you realize luck played a role.

I suppose for every person of any age that is blind to his luck there are 10 who insist that luck is responsible for the success of others when they don’t approve of the risks they took.

“Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.” ― John Maynard Keynes

parkslope
parkslope
1 month ago
Reply to  macropundit

The self-serving bias describes the fact that people are often blind to the role good luck plays in their lives even though they are quick to view bad luck as the cause of negative outcomes in their lives.

A self-serving bias is the common habit of a person taking credit for positive events or outcomes, but blaming outside factors for negative events. This can be affected by age, culture, clinical diagnosis, and more. It tends to occur widely across populations.
https://www.healthline.com/health/self-serving-bias

macropundit
macropundit
1 month ago
Reply to  parkslope

I see what you did there. I didn’t and would never deny that self-serving biases are widespread. Of course they must be. But it’s a big list of individual things, and some are more widespread than others. It is a fallacy of division to take and attribute of a whole or a class and assume that it must also necessarily be true of each part or member. That is what you’ve done in equating the knowledge of luck in an individual’s success with all self-serving biases.

Luck is a topic of which many of its aspects are counterintuitive. Michael Mauboussin has done far and away the best work and writing on the subject.

There is no reason not to stand by my prior assertion, or at least hint, that the financial advisor industrial complex for reasons you should understand –self-serving biases– has the tendency to equate any luck at all with the purest of dumb luck, which are quite different things.

Martin McCue
Martin McCue
1 month ago

I freely acknowledge the role of chance in many of the successes in my life. Without good luck, I would never have achieved what I have achieved in life, or been as happy. However, with at least some of those situations, it may have been luck that created the opportunity, but I still needed to have the presence of mind to recognize it quickly, and to take advantage of it. If I had not done so, luck would not have had any beneficial impact, at least with respect to those situations. (And maybe, just maybe, I was also lucky to be able to recognize them in a timely way, to!)

Cammer Michael
Cammer Michael
1 month ago

When I was in 9th or 10th grade, two of us went early morning to the local Metro North commuter train station with video equipment (bulky and heavy 3/4″ tape) to interview men (yes, mostly men), waiting to go into Manhattan, with the question, “Do you believe you have power over your life?” Some responses were thoughtful, but most dismissed us. We were sweet kids until we asked that question.

Last edited 1 month ago by Cammer Michael
steve abramowitz
steve abramowitz
1 month ago
Reply to  Cammer Michael

It strikes me as surprising that men in particular would dismiss that question. Control (and wielding power) is so endemic to the masculine mystique. I would have thought they’d choose to shout out their allegiance to the cult in the interview. By the way, you may not still be sweet, but you were certainly enterprising and thoughtful as kids.

macropundit
macropundit
1 month ago

I would have thought they’d choose to shout out their allegiance to the cult in the interview.”

These men didn’t show themselves to be like you think, but your faith is still strong.

Steve Hjortness
Steve Hjortness
1 month ago

I would run from any philosopher that advocates: “Lucky fools do not bear the slightest suspicion they may be lucky fools,” It’s much too negative and condescending. I would much rather believe the Roman philosopher Seneca, who stated: “Luck Is What Happens When Preparation Meets Opportunity”. I suspect that if one looks at any situation where they believe they were lucky, they will find Seneca’s observation very much in play.

macropundit
macropundit
1 month ago

My thoughts too. Taleb is sometimes right, but always entertaining and provocative.

steve abramowitz
steve abramowitz
1 month ago

Yes, a far more balanced perspective on life. I have always found it interesting that “enterprising” is seen as an admirable trait but opportunistic has a negative connotation. As you implied, Taleb is not exactly Mr. Happiness.

parkslope
parkslope
1 month ago

Your comment raises the question of why some people are better prepared than others. Could it be that they were lucky enough to have been born with the right temperament and/or lucky enough to have had parents who raised them in a manner that fostered hard work and preparation?

steve abramowitz
steve abramowitz
1 month ago

Probably the more balanced way of looking at it. For all his contribution to market thinking,Taleb is not exactly Mr. Happiness.

Marla Mccune
Marla Mccune
1 month ago

That book sounds interesting. I have been pondering the same thoughts myself. I think most of us have a tendency to take credit for things that go well and blame others for things that don’t. I smirk when I hear people bragging about how well their children turned out because of their fine parenting skills. There are so many factors that influence our successes and failures. Thanks for a good article.

steve abramowitz
steve abramowitz
1 month ago
Reply to  Marla Mccune

Thank you. You bring up an important point. Some people overestimate their ability to control events, while others opt for circumstance. That difference comes with a nuance. People also differentiate between their ability to control positive versus negative outcomes in investing and in life, sometimes to their own detriment.
On the one side too high a perception of influence can lead to overconfidence, while on the other can be associated with a feeling of helplessness and in extreme cases depression.

AnthonyClan
AnthonyClan
1 month ago

Luck, randomness, yes to a small degree. Folks who work hard and smart seem to have an abundance of luck. Any bad luck just delays an investable rise. Finding a spouse at a university welcome party – minimal luck there, that was a setup for success. Luck is for someone who tries to rise out of the ghetto.

steve abramowitz
steve abramowitz
1 month ago
Reply to  AnthonyClan

The way I see it luck lets talent blossom. What if that really successful guy hadn’t met the rich person he sat next to on a flight and became his partner. See what I mean?

Chazooo
Chazooo
1 month ago

Random luck vs “making your own luck” – something great to ponder, or is it just sour grapes on the part of the unlucky?

steve abramowitz
steve abramowitz
1 month ago
Reply to  Chazooo

Making your own luck is an intriguing concept. It’s a double-edge sword. Is that person enterprising (positive connotation) or merely opportunistic (negative). Sour grapes is often a product of envy, and a greater likelihood of labeling someone as opportunistic.

David Lancaster
David Lancaster
1 month ago

Another random meeting of a spouse? Yes! When I graduated from college I moved from NH to AZ to explore a different part of the country. Went to work at a medical facility and met my future wife at work. We are now back in NH where we raised our two children, and as in the below post, celebrated our 40th anniversary this year. Where did my wife grow up? In NH. I randomly moved to 2,500 miles from home and met and married someone who grew up an hour and a half from my hometown.

steve abramowitz
steve abramowitz
1 month ago

So very interesting that so many people have mentioned the role of randomness in “finding” their partner. That’s one place where we seem able to tolerate the role of randomness. Could it have to do with romance? Maybe chance introduces intrigue and wonder, two ingredients of passionate love. That we can accept!

David Golden
David Golden
1 month ago

Perhaps one’s willingness, or ability, to acknowledge and accept the role of randomness is pre-determined by our personalities. I have found belief is a strong thing to overcome. I’m not a person of faith but have found when I’ve raised the issue with fervent Christians many seem genuinely incapable of understanding the core beliefs they hold are largely a product of being born to certain parents in a predominantly Christian nation. In other words, randomness.
In others I have found a nearly hostile attitude suggesting that hard work plus some luck or good fortune, contributed to their financial success. I wonder what makes so many uncomfortable discussing the role chance plays in our lives? None of us chose to win the geographical birth lottery by born in the US though clearly that was a positive, for most.

steve abramowitz
steve abramowitz
1 month ago
Reply to  David Golden

What a thoughtful response. I’m particularly interested in the “why,” why are we so resistant to accepting the role of randomness. I’m playing with 2 ideas. One is that it’s an ego loss. To not be in control brings up fears of inadequacy and helplessness. And it’s really frightening to think that our lives could so quickly be blessed or cursed by chance.

How much does exercise contribute to longevity? 6 months longer? Two years? Six? Especially with regard to health, we are in a race to maximize the role of our well-intentioned efforts. Of course, the other side of the coin is the desire to minimize that role in the case of failure. The internal-external paradigm is reversed for many depressed people, who have come to maximize their own part in failures and minimize it in successes.

Thanks so much for sharing, you really got me going!

Jeff Bond
Jeff Bond
1 month ago

I once, a long time ago, worked in probabilistic risk assessment. What I decided is that all the analysis and evaluation goes out the window with the occurrence of a single individual saying “Hey! Watch this!”

Edmund Marsh
Edmund Marsh
1 month ago

Steve, I’m fascinated by these randomness vs. determinism discussions. I like looking back at the small decisions that led to big outcomes in my life. I met my wife on a blind date a couple of months before she was to return home to CA from graduate school in GA.

steve abramowitz
steve abramowitz
1 month ago
Reply to  Edmund Marsh

Hi Ed

Wow! So similar to my situation. You seem to have been able to accept the limitations of our control over our lives much better than the rest us. May the dice always fall your way.

DrLefty
DrLefty
1 month ago

I grew up near Berkeley in Marin County but went to UC Davis because I was a small-town girl and Davis felt more comfortable to me. The plan was to transfer to Berkeley so that I could major in journalism, which Berkeley had but UCD did not.

I ended up NOT transferring because at the key moment in my sophomore year, I didn’t have the $50 application fee. So I stayed at UCD and there met my husband. We married a year after graduation and will celebrate our 40th anniversary next June!

steve abramowitz
steve abramowitz
1 month ago
Reply to  DrLefty

What a lovely story. It’s so humbling (and scary) to know how life can be banded about so. Glad your encounter with luck was a good one!

Arnold Hold
Arnold Hold
1 month ago

Very interesting, and limited partnerships were pretty bad. Put a small amount in a real estate limited partnership in the early 1980’s, and lost most of it and had cluttered up tax returns for about a dozen years. Crypto has a familiar smell these days.

steve abramowitz
steve abramowitz
1 month ago
Reply to  Arnold Hold

Sorry for your experience with those limited partnerships. As you know, you weren’t alone. I’ve had my share of foolish investments. I compensate by trying to focus on those capital losses…,

Mik Cajon
Mik Cajon
1 month ago

I suspect most people do the best they can with the information they have…luck is in the eyes of the beholder.

steve abramowitz
steve abramowitz
1 month ago
Reply to  Mik Cajon

Definitely. What appears to one person as luck, another sees as part-skill (poker?).

Jack Hannam
Jack Hannam
1 month ago

I too have learned a lot from reading Taleb. I suspect that many of us underestimate just how much luck, or randomness, contributes to our success. In your case, and for so many others too, luck provided an opportunity, but it required smart analysis and courage on your part to exploit it. So, it was both luck and skill.

steve abramowitz
steve abramowitz
1 month ago
Reply to  Jack Hannam

Thank you. May I put your post in my wallet so I can refer to it on a rainy investment day? Calling someone an “opportunist” has a negative connotation but as you say there’s a glimmer of skill there too.

Jack Hannam
Jack Hannam
1 month ago

Of course! There’s a first for everything.

B Carr
B Carr
1 month ago

“Never underestimate one’s capacity to overestimate one’s abilities” – The Dunning-Kruger Effect

Thanks for writing this, Dr Abramowitz.

steve abramowitz
steve abramowitz
1 month ago
Reply to  B Carr

And thank you for contributing to the conversation. Not familiar with that (astute) comment, but it sure sounds a lot like Taleb.

Jeff Bond
Jeff Bond
1 month ago

Congrats to you and your wife. I found myself in two different real estate limited partnerships simultaneously while in my mid-30’s. They were associated with my employer and my wife’s employer. At first, they were great – tax benefits and a sense of ownership. That lasted for a few years. The first crashed and burned when my employer stripped out all the money (he was the sole general partner) and invested in a different partnership that went bankrupt. We had to pay the mortgage company to extricate ourselves from that mess and then I had to find another job. The second one basically was a net zero. I know the general partners did fine, but the limited partners neither gained nor lost.

steve abramowitz
steve abramowitz
1 month ago
Reply to  Jeff Bond

Oh no! I’d like to say I never had a similar story but I can’t. My early mutual fund investments had 8.5% commissions and expense ratios well above 1.00. But I feel we need to be a little tolerant of our youthful foibles. You were just in the learning stage and at least had the foresight to recognize the importance of putting your money to work. We’re all wiser fellows for having survived the well-intentioned impulsivity of our youth.

Jeff Bond
Jeff Bond
1 month ago

Ahh. You make me feel better, Steve. My first mutual fund investments were with Vanguard – home of low fees.

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