Survivorship Bias 2 – Why It Matters

Last time I explained the concept of “survivorship bias.” That is the danger of focusing so much on what works that we fail to learn from what does not…since it is usually only the successful survivors that are around to query. We are then tempted to copy ALL that the survivors did as though their whole formula is key to why they were successful. More often than not we try, but cannot replicate what they did, so we get discouraged or disparaged, and we quit.

If we studied the factual data, we would discover that typically only about 1% or fewer excel at anything, a bunch more get adequate enough results to gain some recognition and keep plugging away, and the vast majority of us better have a good attitude…and other options. This is true in sports, business, music, art, finance and almost any other human endeavor you can name. It is certainly true about real estate investing.

Non-survivors—I hesitate to call them “failures”—rarely if ever get paid for their advice on what NOT to do. First, most disappear. They quit and you don’t see them again. If any keep plugging, we do not put much stock in what they could tell us. After all, they have not accomplished what we hope to accomplish. The proof of the value of their experiences is in their results, right? Not necessarily! Thomas Edison was quite open about having learned 10,000 things that would not work to make an electric light bulb. He did not view that knowledge as “failure.”

Similarly, much of what we have learned in life—as in business—has come from trying something that did not work or that ended badly. The next time we did not do it that way. You probably learned the same lesson I did as a young child about sassing my parents. In my investing I have learned painful and expensive lessons about trusting a partner too much, inadequate protection in contracts, poor legal advice, insufficient due diligence, the downside of being a landlord, and much more. I am sure you can supply a similar list from your experience.

The survivorship bias matters when it blinds us to valuable lessons we can learn from non-success, like what to avoid, what did not work, etc. It is the rough equivalent of trying to drive your car with half the spark plugs missing. You’ll be better off if they are all there.

Next time, in the final installment on the survivorship bias, we will summarize some key lessons on how to avoid the bias and some foundational keys to success that the gurus generally do not even realize about themselves. It turns out that these keys are key ingredients of the secret sauce behind most success. You can apply them to ANY guru’s teaching. Don’t miss it!