For the motion picture industry, the annual awards season is gathering pace. The tussle from Golden Globes to Oscar glory will culminate in glitter at the Dolby Theatre in Los Angeles on March 12.  

Reflecting on past glories, The Deer Hunter ranks high on many lists of the greatest Oscar winners. Of its more memorable scenes, the self-destructive Christopher Walken playing Russian roulette is arguably the one that lingers longest. The stark clash of process against outcome with each fateful pull of the trigger is compelling and timeless drama. Rarely has an actor conveyed the wild spectrum between triumph and disaster with such piercing accuracy.

Meditating years later on the misguided obsession with outcome over process, it is little surprise that Nassim Taleb in his classic book Fooled by Randomness chose to conjure the same stark image:

‘Imagine an eccentric (and bored) tycoon offering you $10 million to play Russian roulette, i.e. to put a revolver containing one bullet in the six available chambers to your head and pull the trigger. Each realization would count as one history, for a total of six possible histories of equal probabilities. Five out of these six histories would lead to enrichment; one would lead to a statistic, that is, an obituary with an embarrassing (but certainly original) cause of death. The problem is that only one of the histories is observed in reality; and the winner of $10 million would elicit admiration and praise.’

On the spectrum between luck and skill, Russian roulette is clearly tethered to the luck extreme. While still insightful, this makes it less than perfect for comparing to a domain like investing which always consists of some combination of the two.

By contrast, sport and investment share this characteristic. The fluctuating battle between luck and skill is as central to sport as it is to markets. As spectators, we are often enthralled by the heroic collective clashes at the Aviva and the intense individual scrutiny at Augusta, while as investors, we must similarly seek to harness luck and skill in the search for positive outcomes.

Johnny Sexton and Rory McIlroy are acutely aware of their inability to control outcomes. They know that the bounce of a rugby ball or the lie of a golf ball can determine the outcome of a Test match or a Major tournament. What they can control is their process – secure in the knowledge that if they continue to apply their superior skill to every test and tournament, that on average and over time, superior results will likely follow. The famous observation of legendary golfer Gary Player that the more he practiced the luckier he got, remains an insight with enduring and widespread relevance.

Helpfully, Daniel Kahenman, the renowned psychologist, Nobel Prize winner in Economics and best-selling author of ‘Thinking Fast & Slow’ also provides us with an easily remembered equation:

Success = Talent and Luck; Great Success = Talent and Great Luck

Pundits and commentators who chant the mantra that results are everything while ignoring the process that leads to them are distractingly wide of the mark. Following his recent appointment in Australia, the blazered denizens of Twickenham might be the latest to learn this lesson at the hands of Eddie Jones.

Notwithstanding the travails of 2022, stock investors have been exceptionally well rewarded. From a post-financial crisis low of 666 in March 2009, for example, the widely followed S&P 500 Index of US stocks is now touching 4,000 again:

S&P 500 – 20 Year Weekly Chart

One of the key temptations for investors benefitting from this outcome is to over-focus on their increased wealth and under-focus on the likely process which has generated it.

The same is true for any investor at any time, but it is probably a greater risk during periods of positive outcomes and strong gains. Given the buoyancy of stock prices in recent years, the importance of distinguishing between process and outcome has seldom been as important.

As an investor making your own decisions or entrusting your savings to a professional manager, it is crucial to stay focussed on the process.

Regardless of past results, any Russian roulette-like approach of making large, concentrated bets should be treated with great caution and probably avoided. Much better to ensure that you have a credible process designed to tilt the probability of success in your favour.

By diligently applying such a process, positive outcomes over time are just as likely in your investment portfolio as they are for Messrs Sexton and McIlroy on the rugby pitch or golf course. Follow their lead by focusing on process and allowing results to look after themselves. And, of course, we wish The Banshees well.