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Written by: Corey Janoff

Confusing Bad Luck with Poor Planning

Quite often people confuse bad luck with poor planning.  They also confuse good luck with smart planning.  Luck plays a factor in almost everything in life and it is important to remember that.  You could have the best possible plan of action and happen to get unlucky and the result not pan out the way you envisioned.  You could also have a horrible plan and get lucky – such as buying lottery tickets instead of saving for retirement. 

Football fans probably remember Bill Walsh as the legendary coach of the San Francisco 49ers, who led them to five Super Bowl championships.  In his book, The Score Takes Care of ItselfWalsh estimates that the outcome of a game was determined by 80% preparation, 20% luck.  You can’t control the luck part, such as getting a good or bad call from the referee, or the ball taking a favorable or unfavorable bounce.  So focus on the preparation and planning and most of the time the score will take care of itself. 

Today we will look at some examples of how luck plays a role in outcomes and hopefully encourage you to focus more on the process and preparation than the final outcome. 

Luck’s Role in Longevity

Easy examples of how luck plays a role in outcomes can be found in health and lifestyle.  My late paternal grandmother (aka “Mom-Mom”) lived a long, happy life into her 90’s.  She was about 5’2” and probably weighed over 250 pounds.  Never exercised a day in her life.  Ate plenty of hearty Italian food, red meat, and sodium. 

If you asked most healthcare experts, they wouldn’t have expected my grandmother to live as long as she did.  You don’t see too many 80 year old’s walking around who weigh between 250-300 pounds.

My parents both knew that Mom-Mom could drop dead at any moment.  My grandparents lived on the other side of the country from me, so we would only get to see them maybe once per year.  As far back as I could remember as a kid, every time we would end our visit and say goodbye, there were lots of tears.  Before we would go to say goodbye, my dad would always remind us, “I don’t know how much longer Mom-Mom and Pop-Pop are going to be around, so you better give them a big hug and tell them you love them.” 

We would repeat this tearful goodbye routine for about 15-20 years.  It basically became a running joke that they would never die, so we had nothing to worry about. 

It’s common knowledge that if you eat healthy, exercise regularly, and stay in shape, you will increase your odds of living longer.  But some people who don’t exercise and don’t eat well get lucky and live a long time anyways!  Other people who are the epitome of health die at a young age. 

A family friend of ours, who was always in great shape and never smoked a day in his life, developed lung cancer in his 50’s or early 60’s and died a few years later.  Some people are simply unlucky. 

Luck’s Role in Sports

Sports is another area where it can be easy to point to luck determining the final outcome.  One of my favorite examples is from Super Bowl XLIX between the New England Patriots and the Seattle Seahawks.  I apologize in advance to my Seattle colleagues, but I think you know where this is going.  If you say the phrase, “Goal-line slant pass” to a Seahawks fan, it could invoke PTSD-like symptoms.

The Seahawks had the ball with one time-out on the one-yard line, down four points, with 30 seconds left in the game.  It was second down and goal.  It appeared the Seahawks were about to score the go-ahead touchdown and win the game.

In this scenario, the Seahawks have plenty of options.  With one time-out left, they could either run or pass on second down. 

If they chose to run on second down and didn’t score, they could call their last timeout with about 20 seconds left.  Then they would be forced to pass on third down and if they still didn’t score, they could either run or pass on fourth down. 

If they chose to pass into the end zone on second down and the pass fell incomplete, the clock would stop.  This would leave them the option to pass or run if they wanted to on third down, because they would still have one timeout remaining. 

The only outcome that could really screw things up for the Seahawks would be a turnover – either a fumble or interception. 

With one of the best running backs in the NFL in Marshawn Lynch, most people probably suspected a run would be called on second down and one.  However, Seattle also had one of the savviest quarterbacks in the NFL in Russell Wilson.You would have to fact-check this, but I believe that within 20 yards of the end zone during that season (the “red zone”), Russell Wilson hadn’t thrown a single interception.  So a pass play would be low risk. 

Everyone who remembers the game knows what happened next.  A pass play is called, Wilson throws a quick pass to a receiver in the end zone and the pass gets intercepted.  Game over.  Patriots win. 

Confusing Bad Luck with Poor PlanningAfter the game and for the ensuing months (years even), the Seahawks and their coaching staff were ridiculed for their decision to throw the ball in that scenario.  Why would you do something so stupid when you have one of the best running backs in the game, who is near-impossible to tackle immediately, when you only need one yard!?!?! 

The strategy was actually a great strategy given the variables at play.  With a quarterback who doesn’t throw interceptions when passing into the end zone, throw a pass on second down.  If you score, you win.  If you don’t score, you have the option of either running or passing on both third down and fourth down.  This keeps the defense guessing.  If you run the ball on second down and don’t score, you have to use your last timeout.  This will force you to throw a pass on third down, which the defense will know is coming. 

The Seahawks made the correct play in that scenario, despite the outcome.  They simply were a victim of bad luck.  Or, if you are Patriots fan, you probably say the outcome was a result of good planning by the Patriots.  Which it was, because they claim to have practiced defending against that type of play leading up to the game.  However, let’s be honest.  That type of pass rarely gets intercepted.  It’s either completed, or knocked down to the ground.  The odds of Marshawn Lynch fumbling the football on a run play were probably equally as likely as that pass getting intercepted (both highly unlikely). 

Patriots got lucky and won the game.  Seahawks got unlucky and lost the game.  That’s life.

Luck’s Role in Investing

If you’re still reading at this point, you are probably thinking, “I thought this is a financial planning blog?  Why the heck are we talking about your grandmother and football?”  Because I love my grandmother and football and I’m the one writing, so chill.  But really, this was my long-winded way of getting to the point about how luck plays a role in finance as well. 

You could have a perfectly designed portfolio for your long-term goals.  Some periods of time it will go up in value a little.  Other times it will go up a lot.  Some periods of time it will go down a little.  Other times it will go down a lot.  That’s how it works.  The short-term, temporary result isn’t a function of the strategy.  Short-term results are luck.  Long-term results are more of a function of the strategy. 

Every time the stock market goes down, people freak out and think they need to change their investment strategy. 

I might get a call or an email from someone with $1 million that says something like, “My account went down by $50k in the last month!  Whatever we’re doing clearly isn’t working.  Just look at the results!  Do we need to change our strategy?”

If you have $1,000,000 in an investment portfolio and it drops in value by $50,000, when you look at your account statement and see a negative $50k, your stomach is going to knot up.   However, a $50,000 decline in a $1 million portfolio is a 5% drop.  That’s nothing.  Every year, investors forget that about once a year, the market will drop by 10-15% on average.  Despite dropping by 10-15%, the market ends the year positive three out of every four years.  Historically speaking, of course.  No guarantees that the future results will follow the same trend. 

Confusing Bad Luck with Poor Planning

If you have $1,000,000 in an investment portfolio, there is a good chance you will see $100-150k swings during the course of the year.  You might see it go from $1 million, down to $850k, then back up to $1.1 million by the end of the year.  If you simply looked at it annually, you would be pleased with a 10% increase that year.  But if you check your accounts frequently, you might panic when you see the value below $900k midway through the year.

Things could work the other way.  You could start off hot and see the value rise from $1 mil up to $1.2 mil, then fall back down to $1.07 mil before the year is over.  Again, if you look annually, you are pleased with a 7% increase that year.  If you check frequently, you were stoked in the beginning of the year, but disappointed as you limped through the holidays having “lost” $130,000 that you had on paper in the summer. 

Paper gains and losses are just that – paper.  You haven’t really gained or lost anything until you actually sell and pocket the money.

Take your house for example.  Prior to online companies like Zillow and Redfin, you would have had no idea what your house was worth until you tried to sell it.  It was only worth what someone was willing to pay for it (still is today), so the sale price might end up being a little (or a lot) different than the list price. 

If your house was a publically traded company stock and you could see what people are willing to pay for it at any second of any day, you would probably be surprised by the drastic change in value.  In June it might be “worth” $510,000, but in November it might be “worth” $465,000 if you were determined to sell it quickly in those respective months. 

If you could see actual price of your house at any moment and watch it decline in value by $45,000, would you all of the sudden panic and think you have a bad house and need to sell it and move?  Of course not! 

Confusing Bad Luck with Poor Planning

Outcomes vs. Strategy

It always concerns me when an individual has a large percentage of their portfolio investing in a single company’s stock.  That single company’s stock will largely drive the results of the portfolio.  And the result is mostly a function of luck.If that stock goes through a stretch of significant appreciation, it will become an even larger percentage of the overall portfolio and the recent growth spurt will be addicting. 

I’ll often look at a prospective client’s portfolio that has half of it invested in one company and tell that person they should sell that stock and diversify.  If that stock has done well lately, they’ll make the obvious observation, “But this stock has done so much better recently than a diversified portfolio.” 

I understand that stock has done a lot better recently than all of your other holdings.  But what if it lags the broad market moving forward?  Then you’ll have a large portion of your portfolio underperforming

Or even worse, what if that company has some major problem and their stock price gets hammered?  It could lose 90% of its value in a matter of weeks or months!   You just never know what could happen.  It could be a financial company who has a lot of bad assets on their books that finally get exposed.  It could be a social media company who gets hacked and all of its user-data is stolen.  Tax laws could change, requiring the company to change their accounting methods, making their profits smaller on paper.  The company’s CEO could make an unwelcoming statement and get thrown into a PR fire with people boycotting the company’s products.  Another company could come along with a new product that makes your company’s products obsolete and no longer necessary. 

If you plan correctly, you won’t be as dependent on luck in order to reach your goals.  Said another way, if you plan correctly, you could take on less risk with a diversified portfolio and be more likely to reach your goals than if you gamble and bet on a single company hitting it big for you.  The objective should be to take on the least amount of risk necessary to achieve your goals.  That requires strategic planning.  

If you get lucky and see your individual stock skyrocket in value, don’t confuse that with good planning.  If your diversified portfolio goes down in value (or underperforms your friend’s individual stock), don’t confuse that with bad planning and think you automatically need to change your strategy.  It could be a good opportunity to review the strategy and possibly tweak the portfolio to keep in line with the overall objective.  But a massive overhaul being needed is highly unlikely. 


Set goals and devise a strategy to reach those goals.  If you stick with the strategy, odds are you will reach the goals.  There may be periods of time where you get lucky or unlucky, but that is part of life.  Don’t confuse luck with good or bad planning. 

Finity Group

Diversification and asset allocation strategies do not assure profit or protect against loss. Past performance is no guarantee of future results. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal.