Is it all luck?

It's unfortunate that the general populace does not understand wealth, or finances.

One of the big misunderstandings is in the idea of luck. Too many think that luck is a much more important factor when it comes to wealth.

Honestly luck is practically worthless. Many times the person who had good luck ends up worse off, and the person who had the bad luck, used it as an experience to move foreword and became better off then if the bad luck did not happen.

Some Politicians will use terms like “life's lottery” to define success, but this either shows they lack understanding in this case, or they are attempting to manipulate the people who don't understand it.

The reality is that people who come into money suddenly have a 70% chance of going through it in 7 years. The stats for lottery winners are even worse.

As I was working on this blog post, I did what I usually do, and search the web to research what I post. I found an article with some facts, but then decided to scroll down, and read the comments below. Unfortunately those comments verified that lack of knowledge.

One person thought you have to pretty much become a complete jerk to keep wealth. Another associated winning the lottery to losing all your friends. One explained that you should put your money into a fire safe. One said to invest in an investment paying 3%. And one angrily attacked the article for pointing out the facts, with a source for the data.

The book “The Millionaire Next Door” was based on research into the wealthy, and found that these people others would call lucky were working 50-100% more hours then the average person, while most actually lived more frugally then the average person did.

When I first read this book, I was surprised I spent more on a watch (more then once) then half of all Millionaires did.

One of my hobbies is gambling, but interestingly I don't like to gamble. I have learned how to count cards, though I have not used it in a casino. I did successfully handicap horse races, but gave that up because it was too much work.

I spent one year playing blackjack in a casino, on a machine once a week. I did the math, and this game was set up with a slight advantage for the player, if perfect basic strategy was employed. The result was I became a “medium roller,” staying in the hotel free 5 times that year, receiving a free meal each week, and a coupon that actually provided all the money I was putting into that machine. Twice I left with $500 in my pocket.

Honestly I could have done at least as good with an additional part time job, but I enjoyed myself.

But the point of all that was that luck had nothing to do with what I did. It was all statistics. Because it was a machine I was on, I was playing 2,400 hands a day. At this point, random luck is out the window, and the statistics moves really close to the mean. (Average.)

Statistics also rules in the stock market, as well as real estate.

Take the S&P 500. This is what the market average is based on. But if you eliminate any stock that does not pay a dividend, your return is actually greater.

One simple step, and you are beating the market. (I'm not aware of any index fund that invests this way.)

With real estate, 3 bedroom houses sell easier then 2. 2 bathrooms sell easier then 1. Simple facts that improve your odds.

There is a reason people think luck is involved. It eliminates their responsibility. It means they don't have to try. Now they are no longer at fault if they fail, it's just the luck of the draw. They were just “dealt the bad cards.”

But the problem with this is that there is a professional gambler in Vegas, and all she does is play poker. How does she do? She breaks $1 million a year. (Not the competitions.)

I guarantee she is dealt the same bad cards as everybody else. She just does a better job playing them.