Plenty has been written over the past week or so on the FTX debacle including how this could be the Lehman moment of the cryptoworld or how this is many times worse than the dotcom bust or how the world’s best known venture investors got lured into it. But if you are looking for a more generous perspective on the situation that can induce some humility in all of us, this one is right up there. The author shows how most young people don’t get much exposure in personal finance and tend to get carried away with get rich quick schemes whilst he himself was ‘lucky’ to have chanced upon Warren Buffet and Ben Graham early on which helped him avoid such disasters. He starts with his perspective on how luck cuts both ways:
“It is tempting to attribute success to hard work and failure to bad luck, but the reality is that luck exerts both positive and negative influences on the human experience. It is certainly possible to make very good decisions that turn out poorly due to bad luck, and it is equally possible for terrible decisions to work out well due to good luck. Arguably, the latter is far more damaging in the long run.”
And then applies it to the crypto situation and relates to his own lucky past:
“For those of us who have avoided the cryptocurrency field in recent years, it is tempting to fall into a self-congratulatory mode as we witness the wreckage, even engaging in some schadenfreude as the chaos continues. But aside from it being in poor taste to take pleasure in the pain of others, we should stop to think about the lucky influences in our lives that shaped our investment approach.
….I don’t remember how I came across Roger Lowenstein’s biography of Warren Buffett but I suspect it was in the course of browsing my local bookstore during the summer of 1995 when I was unemployed. Why did I pick up that book rather than many others that could have led me in a different direction? I knew about Warren Buffett, but he was never covered in my finance classes in college. Picking up that book was lucky.
If Roger Lowenstein had not published his book in the summer of 1995, chances are that I would never have learned about Warren Buffett, read Benjamin Graham’s writing, or bothered to read Berkshire Hathaway’s annual reports. By default, my finance background coupled with my exposure to the dot com world would have led me to speculate. The fact that I didn’t get involved in speculating was due to luck.
I will give myself some credit for hanging out in bookstores during that summer rather than engaging in pointless activities or feeling sorry for myself. I was trying to improve myself and engage in productive activities. I was open to the message when it arrived, and I followed up by immersing myself in value investing. But that initial spark was nothing but pure luck.
When we consider the young people who engaged in speculation in cryptocurrencies, we should be aware of the fact that most of them did not receive any financial education in school and they have been constantly bombarded with marketing messages related to cryptocurrency in general and trading platforms like FTX in particular, including endorsements by numerous celebrities.
I believe in personal responsibility and, ultimately, most people probably knew that they were gambling. Still, the entire situation had the aura of respectability in much the same way as the dot com bubble over two decades ago. In the case of FTX, customers are likely to lose money due to outright fraud rather than losses on the underlying securities they owned. Regulators failed to do their jobs. The system failed.
It is easy to feel puffed up about avoiding financial debacles in particular or bad luck in general, but we should always remember that past success has an element of luck even if principally due to hard work and effort.
There are forks in the road that can have a major influence on long-term outcomes. From a financial perspective, I was lucky enough to be influenced by the right people and principles at exactly the right time in my life.”
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