Investment leaders operate in a high stakes world where every decision carries weight. However, one of the biggest risks is not seen in market data or economic forecasts. It lies in their own judgment. A tendency to confuse luck with skills can lead to overconfidence in bull markets and lead to false responsibility for a recession. Investment leadership requires the ability to separate processes from the outcome, ensuring that decisions are evaluated not only by outcomes but also by merits.
This is the final post in my series on self-improvement, focusing on leadership. We will be discussing these topics in a panel discussion at CFA Institute Live 2025. This is a simple read that reminds us of the hidden traps that interfere with our decision-making: our ego.
Our egos stick to falling into traps of confounding luck and skill.
Let's say you decide to drive a drunk and go home safely. It was a bad decision with a good outcome.
A week later, good night after drinking Zinfandel, ask the designated driver to drive you home. The driver is involved in an accident. It was a good decision with bad outcomes. (Aside from your drinking Zinfandel, this is clearly a scary decision.)
Due to randomness, results are often silent on the quality of decisions. What's worse, they can be misleading. In a world where we cannot predict much of the future, good decisions can lead to bad outcomes, and bad decisions can lead to good outcomes. In the investment management business, it is said that there is “randomness.”
To manage this, investment leaders must be clinical in terms of victory and loss.
Disrupt your luck and skills in the investment world
This problem is serious in the investment world. You can make money by making bad decisions, such as keeping a concentrated portfolio or investing in trends, at least for a while. If you don't look at the quality of your processes and decisions, in other words, if you focus solely on the outcome, you might think you're an absolute genius. However, you are unlikely to become a successful investor in the long term.
Annie Duke's amazing book Thinking with a betit is now necessary to read in the world of investment. Duke is a business consultant and former professional poker player. She explains that we instinctively associate good results with good decisions and bad decisions. She calls this instinct “as a result.” But in many aspects of poker and life, “winning and losing are nothing more than a loose signal of the quality of decisions,” she says.
Distinguish between the two
To distinguish between the two, we develop self-awareness. Focus on the decision-making process rather than the outcome. Remember that luck may have something to do with you when you win. This is difficult. We all have this reflex to trust victory.
And if you miss your target, don't beat yourself. Is it possible that you made the right decision, but have been unlucky? It's easy to tell yourself.
Please quote one of my mentors:
“There are only two types of investors: talented and unlucky.”
Important points
Good investment leadership isn't always the right thing to do, but encourages the process of prioritizing healthy decision-making over short-term outcomes. By recognizing the role of opportunities and strengthening the analytics sector, investment leaders can build more resilient strategies and teams. In the unpredictable world of finance, the best leaders are not only chasing return, but also cultivate decisions and processes that promote sustainable success.
CFA's Sébastien page is the author of Leadership psychology.
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