Survivorship Bias 4 – The Secret Sauce

This is the fourth and final post about the survivorship bias. Be sure to check out the first, second and third, too (“The Concept,” “Why It Matters,” and “Application to Our Situation”).

As you may remember, the survivorship bias is the skewing of conclusions about gathered data toward the input acquired from surviving sources without adequate consideration for the data on what could have been learned about what did not work from those who are no longer around.

We have explored why we should care and a little about the fact that it is directly applicable to real estate investing or entrepreneurship. We talked about luck being where preparation meets opportunity, and how that is only half the story. Interestingly, the other half of the luck story is a key ingredient in the secret sauce of success.

It turns out that luck is a misnomer. Chance is a significant factor in all our lives. If you had been one car farther back, the guy that ran the red light would have hit someone else’s car. If you had skipped the event where you met your significant other, you might never have met him or her. If you had not taken that route home, you would not have noticed that distressed property that became a profitable rehab for you. It turns out that some people are better than others at interacting with chance. They manage their probabilities better. The thing about probabilities is that it is a numbers game. The more coins you flip, the more “heads” you will see.

Here is what David McRaney said in his blog on this topic:

It might seem disheartening, the fact that successful people probably owe more to luck than anything else, but only if you see luck as some sort of magic. Take off those superstitious goggles for a moment, and consider this: the latest psychological research indicates that luck is a long mislabeled phenomenon. It isn’t a force, or grace from the gods, or an enchantment from fairy folk, but the measurable output of a group of predictable behaviors. Randomness, chance, and the noisy chaos of reality may be mostly impossible to predict or tame, but luck is something else. According to psychologist Richard Wiseman, luck – bad or good – is just what you call the results of a human beings consciously interacting with chance, and some people are better at interacting with chance than others.[1]

Notice that he said “consciously interacting.” That means they acknowledge chance and apply thought and strategy to how they deal with it. McRaney continues,

Wiseman speculated that what we call luck is actually a pattern of behaviors that coincide with a style of understanding and interacting with the events and people you encounter throughout life. Unlucky people are narrowly focused, he observed. They crave security and tend to be more anxious, and instead of wading into the sea of random chance open to what may come, they remain fixated on controlling the situation, on seeking a specific goal. As a result, they miss out on the thousands of opportunities that may float by. Lucky people tend to constantly change routines and seek out new experiences. Wiseman saw that the people who considered themselves lucky, and who then did actually demonstrate luck was on their side over the course of a decade, tended to place themselves into situations where anything could happen more often and thus exposed themselves to more random chance than did unlucky people. The lucky try more things, and fail more often, but when they fail they shrug it off and try something else. Occasionally, things work out. [2]

Phil Plait, an astronomer and leading voice in the skeptical movement, stated, “The only way you can spot [survivorship bias] is to always ask: What am I missing? Is what I’m seeing all there is? What am I not seeing? Those are incredibly difficult questions to answer, and not always answerable. But if you don’t ask them, then by definition you can’t answer them.”[3]

So, avoiding survivorship bias in order to see more of the big picture is part of the secret sauce…because it involves liberal applications of curiosity. A ferocious curiosity is something you can learn. How about luck? That involves curiosity, too. Lucky people seek out new things to try, situations rich in unpredictable opportunities, and the unscripted but positive side of randomness. They know it’s a numbers game so they make their numbers bigger in all the important ways. You, too, can achieve bigger numbers. It will not require magic for you to begin casting a wider net, identifying more sources for leads, sticking with something that is working, abandoning unproductive paths, and making better use of leads you already have with better follow up. Don’t buy another book first or attend another seminar first. Start developing that ferocious curiosity and start leveraging chance. Get out of your rut and start looking for what you don’t know you don’t know. Be open to opportunities you were not expecting or seeking, Open your mind. Constantly ask, “What am I missing?” Intentionally avoid the survivorship bias and learn as much as you can learn from non-survivors, too.

Stop being the person looking for a 2-inch, gold-plated needle in a haystack. Start being the person digging into a haystack for anything that might be useful. After all…

… despite how it may seem, success boils down to serially avoiding catastrophic failure while routinely absorbing manageable damage.[4]

If we focus too much on keeping things nice and neat, tidy and controlled, and only go where we know how things will turn out, we are limiting our “luck.” The luckiest—the  “survivors”—go where they cannot predict the outcome, they put themselves out there more frequently, they explore new avenues voraciously, and they exhibit ferocious curiosity. Learn from non-survivors about what does not work. And go out there and massively increase your own “luck!”[5]

 



[2] ibid.

[3] ibid.

[4] ibid.

[5] If you want to read the whole post by Thomas S. Buckell, check out http://tinyurl.com/q9mkflf. I learned about it by reading a reprinted blog post by Charles Hugh-Smith and quoted at http://www.zerohedge.com/news/2013-06-16/guest-post-unknown-unknowns-and-survivor-bias. The latter was discussing things we know that we know, things that we know we do not know, and things we are not even aware we do not know.

Survivorship Bias 3 – Application to Our Situation

If you have not figured out yet what “survivorship bias” is, go back and read one or both of the prior posts (“The Concept” and “Why It Matters).

When I was working in the computer industry, I knew folks who were awesome salespeople. Many were “naturals.” It seemed as natural to them as breathing. They learned some ways to improve, but they had started out great. Most could not really teach how they did it because they did not understand how they did it. They could teach only some of what to do and what to avoid. Others, who studied sales diligently and applied what they learned in order to become awesome, were great teachers. They understood what was behind their success and could share it with others.

I suggest to you that unless a guru has spent significant time studying it, they only THINK they can teach someone else to repeat their success. They tell you about their lemonade stand as a kid or their lawn-mowing business. They tell you about their first rehab on a shoestring.They teach you the processes they used, some of the knowledge they gained, and may even give you some things to avoid. They intentionally or unintentionally leave out some key information you will need in order to come close to replicating their success. Often they do not even realize what it is that they do differently from others that is making the difference.

We often attribute at least some of their success to “luck.” And when it does not go as well for us, we conclude our luck is not as good as theirs was. Amy Hempel said, “There is no such thing as luck. Luck is where preparation meets opportunity.” Oftentimes that preparation took hard work, and being in the right place at the right time for that opportunity took more hard work. That is all true, but it’s still only half of the story.

One of the lessons I learned several decades ago when I was a high school physics teacher was that the parade of motivational speakers hired every year by the administration traded on false hope. All that was required to hit the speaking circuit was some level of success and a big enough ego to go out and do it. (Of course, that’s true of most consultants, trainers and seminar gurus, too, I suppose. Maybe even bloggers.) By adding some good marketing, they could trade in their textbooks and classrooms for stages and much bigger paychecks. The techniques they preached to us on how to be successful merely fit their personality, skills, and experience in that specific situation at that particular time in that location with that outside support, etc. None of those conditions fit our situation, so attempts to replicate their success were futile.

Sadly, it applies to real estate investing or starting a business, too. The only gurus I pay much attention to these days are those whose success depends on their ability to make me successful. That is called “alignment of interest.” Even then what I have learned about the survivorship bias is going to change how I view and apply what they teach.

We need healthy doses of skepticism when confronted with yet another sales pitch, yet another seminar, yet another workshop. Yes, we can gain some new knowledge. But it will still take hard work, focus, and persistent discipline to convert that new knowledge into success. What are the chances the new approach has any greater probability of success than what we are currently doing or have tried before? What we really need could very easily be to just do what we are now doing, but do it smarter, harder, longer or all of the above

Next time we will look at the lessons about the survivorship bias that we can apply to have a better shot at the success to which we aspire. Don’t miss it!

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!

Survivorship Bias – The Concept

I just read a fascinating blog post that has nothing to do with real estate or entrepreneurship…and yet has everything to do with finding success. It was about e-books and was written by a best-selling author. It introduced me to the idea of “survivorship bias.” Let me share what I learned and how it applies to us.

The survivorship bias describes our tendency to put great stock in trying to learn from the few successful survivors while making no attempt to learn from the multitudes doing the same thing who did not get those results. Without comparing the two sets of experiences, we cannot truly discern the key aspects that made the difference. We assume that copying the successful as closely as possible will also make us successful. More often than not, it was a combination of many things, some of them more important than others. This applies to fad diets, stock market investing, products advertised with testimonials, and seminar gurus, among other things.

We are not the only ones who fall into that trap. The military almost did it during WWII when they were exploring what to reinforce by studying damage on bombers that made it back to base. The reality was that the surviving bombers successfully made it back with that damage. The damage that really mattered was the deadly damage to those planes that did not make it back. Companies do it, too. Have you ever been given a satisfaction survey? Were you surveyed after you decided NOT to purchase their product or after you bought it? Usually it is the latter. Without going further, they cannot learn why most people did NOT buy. All they can learn is why some did.

Over the next few postings I am going to explore this further. In the fourth installment I will summarize the very important lessons for all who truly want a level of success that has eluded them so far. They are key ingredients in the “secret sauce” behind most success. Don’t miss it!