Your coworker bought Tesla in 2016 and turned $50,000 into half a million. Your college friend got in early on Bitcoin. Your cousin flipped a meme stock for 300% in three weeks. And you? You have been putting money into an index fund like a boring person.
Here is the question nobody asks: can they do it again?
The difference between luck and skill in investing is not philosophical — it is mathematical. And the math has enormous consequences for how you should build your portfolio.
Two Investors, Two Outcomes
Investor A — The Stock Picker
Invested $50,000 in Tesla in 2016. By 2024 it grew to ~$500,000. One concentrated bet, incredible timing, life-changing result.
Skill? Or right place, right time?
Investor B — The Index Investor
Invested $50,000 in a diversified S&P 500 index fund. Earned a steady 8% for 25 years. No drama, no headlines, just compounding.
Less exciting — but endlessly repeatable.
On the surface, Investor A looks like a genius. A 10x return! But let us look at this more carefully. In 2016, there were roughly 4,000 publicly traded stocks in the US. Tesla was one of them. Picking the one stock that would deliver 10x in 8 years — out of 4,000 — is not a strategy. It is a lottery ticket that happened to win.
The Growth Paths
The chart below shows both trajectories. Notice how the Tesla pick shoots up dramatically — but stops at year 8 (because the gain was realized). The index investor keeps compounding quietly for 25 years.
Investor A's result looks spectacular — and it is. But it is a one-time event. Investor B's result is a repeatable process. And in investing, process beats outcome every time.
Survivorship Bias: The Stories You Never Hear
For every person who picked Tesla early, there are dozens who picked other "sure things" that went nowhere — or went to zero. You never hear about them because they do not write blog posts, they do not get interviewed on podcasts, and they certainly do not brag at dinner parties.
5
Stock picks that "went to the moon"
These are the stories you see on social media, in news articles, and at dinner parties.
95
Stock picks that lost money or went to zero
Nobody tweets about the stock that quietly lost 80%. The failures are invisible.
This is survivorship bias — the cognitive error of drawing conclusions only from the winners while ignoring the losers. It is one of the most dangerous biases in investing because it makes stock picking look far more successful than it actually is.
A Thought Experiment
Imagine 1,000 investors each picking a single stock in 2016. After 8 years, maybe 10–20 of them would have a 10x result. Those 20 people would feel like geniuses. They would attribute their success to research, conviction, and skill. The other 980? Silence. And if you only listen to the 20 winners, you would conclude that stock picking works brilliantly — when in reality, the success rate was 2%.
Probability Thinking: Outliers Distort Perception
Human brains are terrible at probability. We are wired to overweight vivid stories (your friend's Tesla win) and underweight boring statistics (the average fund manager underperforms the index). Here are the actual numbers:
90%
of actively managed funds underperform the S&P 500 over 15 years
Source: S&P SPIVA Scorecard
~2%
of individual stocks account for ALL net stock market gains since 1926
Source: Bessembinder (2018), Arizona State
$342k
$50k at 8% for 25 years — no stock picking required
That second statistic deserves emphasis: only about 4% of all stocks ever listed have accounted for the entire net wealth creation of the US stock market. The other 96% collectively returned less than Treasury bills. Picking the right needle from the haystack is not a skill most people have — and the data says even professionals cannot do it consistently.
Skill vs Luck: The Repeatability Test
The clearest way to distinguish luck from skill is to ask: can you do it again? Skilled activities (like chess or surgery) produce consistent results across attempts. Lucky activities (like roulette) do not. Where does stock picking fall?
| Factor | Stock Picking | Index Investing |
|---|---|---|
| Can you repeat it? | Very unlikely | Almost certainly |
| Depends on timing? | Entirely | Barely |
| Requires research? | Enormous amount | None |
| Survivorship bias? | Massive | N/A — you own the whole market |
| Emotional difficulty? | Extreme | Low |
| Historical win rate (vs index) | ~10% of funds over 15 yrs | 100% (you ARE the index) |
| Downside risk | Total loss possible | Market-level drawdowns |
The evidence is overwhelming: individual stock picking is far closer to the luck end of the spectrum than most people realize. Index investing, by contrast, is almost purely a function of market returns — which have been positive over every 20-year rolling period in US history.
Interactive: Monte Carlo Simulation
This simulator runs hundreds of hypothetical investment paths using the same strategy (S&P 500-like returns: ~10% average, ~18% volatility). Every investor below has the same skill, the same strategy, and the same starting point. The only difference is luck — the random sequence of annual returns.
Hit "Re-roll" to run a new batch. Notice how outcomes vary wildly even with identical skill. Some investors end up with $1M+, others barely double their money. That spread is pure randomness.
Median
$414k
Top 10%
$1.4M
Bottom 10%
$137k
Best Case
$4.3M
Worst Case
$33k
Hit $500k+
78 / 200
Outcome Distribution ($50k starting, 25 years, ~10% avg return, ~18% volatility)
Each simulation models 25 years of annual returns drawn from a normal distribution (mean 10%, std 18%) — roughly matching S&P 500 historical behavior. Same strategy, same skill, wildly different outcomes.
Lucky Pick vs Steady Index Calculator
Adjust the parameters to compare any "lucky pick" scenario against steady index investing. How big does the lucky win need to be to beat decades of compound growth?
Lucky Stock Pick
$500,000
10x in 8 years (33.4% CAGR)
Probability of repeating: ~1–5%
Steady Index
$342,424
8%/yr for 25 years
Probability of repeating: ~85–95%
What This Means for Your Portfolio
None of this means you should never buy individual stocks. It means you should be honest about what you are doing when you do. Here is a framework:
Core portfolio: 80–90% in index funds
This is your wealth-building engine. Low cost, diversified, historically reliable. Do not gamble with the money that matters.
Satellite portfolio: 10–20% for individual picks
If you enjoy researching companies and want to take shots, allocate a small portion. Treat it as entertainment spending with upside potential.
Track everything — honestly
Record every trade, including the losers. Compare your total stock-picking return against the S&P 500 over the same period. Most people who do this discover they would have been better off indexing.
The Bottom Line
Investing outcomes are shaped by both skill and luck — but for individual stock picking, the luck component dominates far more than our egos want to admit. The investors who build the most reliable wealth are not the ones who hit one big winner. They are the ones who harnessed the most repeatable strategy available: broad diversification, low costs, and decades of patience.
Your friend's Tesla story is exciting. Your index fund is boring. But boring, compounded over 25 years, is how real wealth is built — and it works whether you are lucky or not.