COMMENT
Don't be so hard on Jon, Ygritte. Nobody knows anything these days, not only in Game of Thrones - but most of us don't even know that.
In "Adventures in the Screen Trade," screenwriter William Goldman wrote that "nobody knows anything." It is a quote that is enjoying a second life these days.
The book's first mention of that line, which is repeated throughout, referred to the many studios that passed on films that would go on to be blockbusters. Every studio in Hollywood but one (Paramount) turned down "Raiders of the Lost Ark." It became one of the highest-grossing films of all time, and was nominated for nine Academy Awards. "Star Wars" was passed on by the largest Hollywood studio at the time, Universal. It grossed $US1 billion ($1.35 billion), and spawned a franchise with five films that are in the all-time top 100 in gross box office sales. Eventually, Walt Disney Co. purchased the Star Wars production company, Lucasfilm, for more than $US4 billion.
Goldman was referring to the fact that, despite all of their research, experience, focus groups and smarts, no one in Hollywood has any idea how well a film will do before its release.
Whenever we try to figure out complex future outcomes -- like what movie might do well -- we enter a minefield. Start with a screenplay, which may or may not translate well from the page into a visual medium. How compelling is the director's vision? How likeable are the character portrayals? And perhaps least known, what are the public's tastes going to be in three to five years, when the film ultimately is released to cinemas?
What do film executives know? The first "Star Wars" film was passed on by the largest Hollywood studio at the time, Universal. It went on to gross $US1 billion at the box office and start a franchise with an empire of fans.
There is an enormous degree of serendipity and good fortune that goes into a blockbuster movie. The same seems to be true of just about everything in life, from marriage to careers to stock portfolios.
Skilled, or just lucky?
How easy is it to mistake good luck and randomness for skill? How readily do we convince ourselves we understand what is going on, that we are in control of our destinies, when nothing could be further form the truth?
Consider this US election cycle's primary contests. Bernie Sanders, a 74-year old Jewish Socialist was widely expected to drop out of the Democratic race almost immediately. Despite the delegate math, he's still in the race. And almost all of the pundits had proclaimed -- quite loudly, too -- that Trump had absolutely no shot at winning the Republican nomination. You were admonished to beware their calls of "Peak Trump" last year, because (say it with me, people) nobody knows nuthin'.
I know nothing, but at least I am aware of my own ignorance, and am willing to admit this publicly. Most of the rest of the commentary class has yet to learn this all-important lesson.
Myth of meritocracy
Robert H. Frank is a professor at Cornell's Johnson Graduate School of Management, and author of numerous books on economics, including a widely used textbook on economics co-authored with former Federal Reserve Chairman Ben Bernanke. In his latest book, "Success and Luck: Good Fortune and the Myth of Meritocracy," he discusses how underappreciated the role of random chance is in our lives. Successful people tend to credit their skill, hard work and intelligence for their fortunate outcomes.
Frank points out that for every big winner, there are scores of people who are as skilled, hard-working and intelligent, but came in just behind. The lack of a lucky break can be the difference between wild success and a near miss or worse. Frank's 1995 best seller, "The Winner-Take-All Society: Why the Few at the Top Get So Much More Than the Rest of Us," delves into the details of this.
Investors should consider the insights of Michael J. Mauboussin, adjunct professor of finance at Columbia Business School and head of global financial strategies at Credit Suisse. In "The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing", he makes the observation that as any field becomes more crowded with talented, skillful players, the role of luck becomes ever greater. When everyone is competing at a very high level, personal qualities cancel out each other. The final outcome can best be described as skill-plus-luck.
Unlucky stock pickers
Another reminder of the role of luck for better or worse was this week's Sohn Investment Conference in New York, where professional investors and hedge-fund managers gather to reflect on the state of the investment world. It is a perfect example of this phenomenon.The illustrious lineup holds forth on various investment themes, economic analyses and, of course, favourite (or hated) stocks.
How did this all-star team do in picking stocks based on the touts at last year's conference? As Bloomberg reported, "only two of last year's speakers had winning bets, and even they had poor calls that overwhelmed their winners."
We have discussed the futility of soothsayers trying to forecast too many times. Attempting to accurately assess complex systems filled with random and interrelated variables, exogenous factors and unknown human behaviour is a fool's errand.
We don't like to admit it, but nobody knows anything -- and that includes me and you.
Bloomberg
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