Workbook for Volume 1 – Part III – Section #10: Building “Luck-Compounding Machines” (1 of 3)
For new readers: Please read the “Pinned Post” at the top of this Substack’s Home Page, and titled Why Use Public Peer-Review to Write a Book? - “See for Yourself”.
For returning readers and subscribers: This post introduces the Revised Version for Volume 1 – Part III – Section #10: Building “Luck-Compounding Machines” (1 of 3)
Summary:
Volume 1 – Part III – Section #10: Building “Luck-Compounding Machines” (1 of 3) - This first of three sections about “Luck-Compounding Machines” presents the early development & fundamental importance of compound interest, and its connection to creating our own good luck in the context of business ecosystems that nurture growth. In 2012, Michael Mauboussin introduces the “Skill/Luck Continuum” in his book titled “The Success Equation”. Mauboussin’s continuum draws a straight line ranging from “Pure Luck” on the left, to “Pure Skill” on the right. Starting with the extremes, he places playing “Chess” on the right of the line, as a pure skill activity, and playing “Roulette” on the left of the line, as a pure luck activity. Other activities fall on various places on the line. Mauboussin’s book starts with Taleb’s “Four-Quadrants” matrix [See Volume 1 – Part II: The “Word Magic” and the “Number Magic” of “Black Swans”], and closes with his own 2x2 matrix of “Persistence vs. Predictive” statistics. According to Michael Mauboussin, investing involves more luck (60%) than skill (40%), and thus fits in the lower-left quadrant of the enhanced Cipolla-chart. This means that the “Tools” of the Logic & Statistics Program will not suffice to manage investments, and that the “Checklists” of the Heuristics & Bias Program will not fix the problem, because they both benchmark “Rationality” with the “Tools” of the Logic & Statistics Program. It also explains why the “1/N heuristic” for portfolio management, a “Process” from the “Fast & Frugal” Heuristics Program, seems so hard to beat with the “Tools” of the Logic & Statistics Program. These observations highlight the importance of building “Luck-Compounding Machines” that combine these programs’ “Tools, Checklists & Processes” across the quadrants of the enhanced-Cipolla chart.
Developing…
”CTRI by Francois Gadenne” writes a business book in three volumes, published serially on Substack for public peer-review. The book connects the dots of life-enhancing practices for the next generation, free of controlling algorithms, based on the lifetime experience of a retirement age entrepreneur, & continuously updated with insights from reading Wealth, Health, & Statistics research papers on behalf of large companies as the co-founder of CTRI.