Good Luck ? or I’m so smart?

After reading Fooled by Randomness – The Hidden Role of Chance in Markets and life, I was see the “I’m so smart… ” everywhere attributed to what is clearly chance.

From the Elliot Wave Newsletter :

Two reporters from NPR’s “Planet Money” broadcast recently recorded a lively conversation with three Wall Street professionals, in a bar literally across the street from the Federal Reserve Bank of New York. The reporters overhead a conversation about the big bank bailouts, and listened for hints of gratitude toward the taxpayer from the three Wall Street pros. They didn’t hear it, but they did join the conversation. Here’s a direct quote from the tape:

Planet Money: “You got to keep your jobs because you guys got bailed out.”

Wall Street pro: “No, No, No, No — that’s not why I have my job. Because I’m smarter than the average person…

“…The government bailing out an industry was a necessity for whatever the situation was. The fact that I benefited from that was because I’m smart. I took advantage of a situation. 95% of the population doesn’t have that common sense. The reason I’ve been doing this so long is that I must be smarter than the next guy.”

In Luck Versus Forecast Ability: Determinants of Trader Performance in Futures Markets (1991) the author concludes although large numbers of traders appear to exhibit significantly superior forecasting ability, the statistis are highly supportive of the premise that profits are due to luck, not forecasting ability.

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