How does he view the 'illusion of victory' brought by luck?

How does he view the illusion of victory brought by luck?

Hey there! I'm a huge fan of Munger and have read many of his speeches and books, like Poor Charlie's Almanack. This question is quite interesting—it touches on Munger’s views about human psychological biases, especially the "illusion of victory brought by luck." I’ll walk you through my understanding in a conversational way, keeping it straightforward.

First, what is the "illusion of victory brought by luck"?

Simply put, it’s when we succeed or win due to good luck but mistakenly attribute it to our own intelligence or skill. For example, if you buy a stock and the market soars, making you a fortune, you might think, "Wow, my judgment is spot-on!" In reality, it might just be market luck, with little to do with your "skill." Munger calls this a cognitive bias—one that makes us overestimate ourselves and underestimate the role of luck.

Munger’s perspective

Munger emphasizes the dangers of this illusion. He sees it as a "bug" in the human brain rooted in evolutionary psychology: we’re wired to credit success to ourselves, which boosts confidence but also breeds arrogance. Munger often says, "If you think your success is all due to skill, you’re deceiving yourself." He cites examples from gambling or investing: many win a few hands and assume they’re experts, only to lose everything when luck runs out.

In Munger’s view, this illusion causes serious problems:

• Decision-making bias: You’ll repeat luck-dependent strategies, setting yourself up for failure when luck fades. For instance, an entrepreneur who luckily catches a market trend might assume they’re a genius, then rush into the next project without careful consideration—and fail.
• Self-perception issues: It distorts your self-awareness, making you overlook risks. Munger advises reflecting on the "luck factor" by asking, "How much of this success was luck versus actual skill?"
• Behavioral psychology angle: Influenced by Daniel Kahneman (the Nobel laureate) and Amos Tversky, Munger sees this as a variant of "survivorship bias" or "hindsight bias." We focus on winners while ignoring unlucky losers.

Munger’s advice: How to avoid this illusion?

Munger doesn’t just theorize; he offers practical tips:

• Use inverse thinking: Ask, "What if luck had turned against me?" This helps separate luck from skill.
• Study probability: Munger urges people to "learn a little math"—understand randomness and avoid mistaking chance events for inevitability.
• Stay humble: He practices this himself, often noting that luck played a role in Berkshire Hathaway’s success. Remember his words: "The wise man admits the role of luck; the fool credits it all to himself."

I learned this the hard way too—early in my stock trading days, I made some gains and thought I was brilliant, only to lose when the market shifted. From Munger, I learned to reflect on luck during successes and scrutinize my own mistakes during failures. It’s made my decisions far more reliable. Have you had similar experiences? If you have questions, let’s chat!