Here is a basic framework or mental model for how I approach the concept of luck.
I try to think of luck as accumulated advantage rather than happenstance and good fortune. Accumulated advantage is the compounding value of consistent success throughout a persons life. When you combine focused and consistent action with incremental improvement, you have the keys to building your own “luck“.
Incremental improvement sounds larger and more abstract than it really is. For example, a marginal gain of even 1% daily over the span of a year yields sizable results as can be seen by James Clear’s chart below.
What the chart shows me is that it’s important to focus on building a system where I can achieve small wins, consistently or daily to achieve large long term value.
Not all incremental activities are valuable because performing many activities at once can detract from compounding actions. If I spend time working on 10 different career paths at once, I will more than likely do poorly at all of them from spreading myself too thin. So, it is important to find a single path to focus on as early as possible in order to get the most out of compounding activities.
This type of incremental work is a lot like becoming an expert in a particular field using the concept of 10,000 hours in Malcom Gladwell’s Outlier. Focusing on depth and breadth of knowledge over a long period of time creates a domain expert that can be valued by others. Ie: try to become a specialist in a niche topic rather than a generalist of all topics.
Easier said than done. Focus is hard in a world with limitless options.
None the less, in order to achieve accumulated advantage it’s imperative to pick a path and focus on investing for the long term. Distraction leads to actions that don’t serve the longterm purpose, and these actions therefore detract from consistent progress towards the end goal.
The end goal is building an asset with growth that snowballs over time.
I think of distractions as old fashioned luck, they may yield something in the short term, an unexpected fortune. But more often then not, distractions provide little to no return. It’s like comparing the yields of simple interest vs. compounded interest of consistent and focused actions. The tradeoffs over time are extreme as indicated in the chart below.
A successful life of consistent and focused action creates accumulated advantage. A person that has spent a life of focused value building over long time horizons will have a much better chance at accumulating wealth over their lifetime than an unfocused person.
Accumulated advantage is a generational concept. One generation can pass accumulated value to another. This is the privilege of leaving a legacy.
The stockpiled value accumulated and compounded over time can be left to future generations to continue the cycle of exponential value creation.
The Matthew Effect
This is where Matthew Effect comes into play. In modern discourse we look at accumulated advantage as when an individual or group gains an advantage over others and this advantage compounds over time. This is where the saying, “the rich getting richer as the poor get poorer” comes from.
It’s easy to get caught up in this narrative of us vs. them when we view life on a single generation timeline. By doing so, we lose perspective and see someone that is born into accumulated advantage as lucky or privileged. But this ignores the hard work and consistent focus required to yield the legacy that is left by past generations.
Some legacies are the opposite. These lives are filled with misfortune and should be thought of as accumulated disadvantage. Some people are also born into better situations than others and those born to legacies of disadvantage can feel trapped. There can be no denying that fact. In viewing these situations as legacies of accumulated disadvantage, we can understand the root cause and build strategies to end the loop that negatively compounds.
Accumulated disadvantage is created from the compounding of poor execution, bad decisions and lack of consistent focus. These harmful compounding effects create the environment where the poor seem to get poorer. When a person is born and the legacy they receive is one of struggle, lack of understanding of how accumulative advantage works can create a situation where the individual feels powerless.
But not everything in life is a zero sum game. The rich don’t necessarily get richer at the expense of the poor. The Matthew Effect is fatalistic and can create self fulfilling scenarios where only luck can create progress. Instead, it’s important to reframe luck and privilege as accumulated advantage played out on a generational time scale. By doing so, it gives a path that everyone no matter their background can take to build their own luck and legacy.
Even individuals and groups that had the misfortune of being given legacies of disadvantage can shift to one of advantage. By learning about focused and compounding efforts individuals can work towards creating accumulated advantage. It’s a longterm and generational play to create a better world for our future families to come.
In closing, it’s clear to me the power of accumulated advantage. In working to distill my thoughts on this topic I think there is more to learn about accumulated disadvantage. Mainly, understanding how to educate and work through the short term challenges associated with setting up long term value creation. It’s hard to think on a generational timescale when you’re worried about paying this months rent.