Someone Always Beats the Market — That Doesn’t Mean They’re Right
Don’t be fooled by someone’s success, especially when it is statistically inevitable.
When someone has success, whether it’s in business or in investing, more often than not we see others try to copy their strategy. It’s the easiest, if not laziest, way to try and win. Some of the best companies have done it historically, Apple being the biggest culprit. Apple is rarely the first one to develop a new idea. But more often than not, they end up being the best to develop it.
But most people, and most companies, aren’t Apple. Most people and companies, however, are definitely blinded by others’ success.
Let’s take investing as an obvious example. Everyone wants to beat the market. And the best traders claim they do beat the market. So let’s look at the data.
There are over 16,000 investment conglomerates in the U.S., including mutual funds and exchange-traded funds. From 2014 to 2024, there were just 20 total funds that beat the S&P 500’s 327.8% return. Each of those 20 likely markets that fact, and thousands of others likely try to copy the investment strategies of those 20.
But if there’s anything we know, it’s that humans behave irrationally, and humans certainly ignore statistical probabilities. If you start in Year 1 with 10,000 investors, and every year 50% of them beat the market, then 13 years later there will be one person that beat the market every year. That person will say “I’m smarter than everyone else,” but in reality it’s just math.
So let’s take the real-world example. The 16,000 conglomerates that exist in this country? If half of them beat the market in any given year, then after 10 years, we would expect 15-16 firms to have beaten the market in total. That’s pretty darn close to the 20 that have actually beaten the market during that time span.
So if “winners” in the market are just a statistical normality, why are they considered “special” or “brilliant”? It’s because we like good stories. Everyone does. No one wants to admit that it’s just dumb luck. It’s more fun to laud brilliance and build people up. In reality, they are just the statistically lucky ones that have flipped a coin and landed on heads ten times in a row.
There are a myriad of psychological terms that encompass this: selection bias, survivorship bias, outcome bias. The bottom line is that humans love starting at the end of the story and working backwards. No one starts their research or story with the 16,000 investors at the beginning. You start at the end, with the ones that won, and then back fill the decisions that you believe led to their success – even though 15,000 others may have employed the exact same strategy. We love studying survivors. It’s not a moral failing, but a data error. If 1,000 people each invest in different risky startups, and one of them becomes the next Facebook, the single person who invested in it is called a genius. They might very well be, but statistically, that makes no sense, especially since all 1,000 people thought they were backing the correct company.
In any sample of people, if you have a large enough number, someone will outperform. Over a long enough time horizon, someone will always look brilliant. That doesn’t necessarily mean they are. Long-term success doesn’t always require genius. Sometimes, it’s just probability. In large samples, extreme success is inevitable. But inevitability is not the same thing as insight.
In investing, it is widely known that the smartest investment strategy for an average investor (and even some Wall Street investors) is to put your money in low-cost indices that simply track the stock market. By nature, the “market” is almost impossible to consistently beat, because the whole point of the “market” is that it’s the most efficient collection of companies. So by tracking the market, you increase your chance of maximizing your return.
Even famed investor and longtime Berkshire Hathaway CEO Warren Buffett agrees with that sentiment. As someone who picked stocks for a living (and was incredibly successful at it), he regularly admitted that Berkshire failed way more often than they succeeded. But the ones you hit big on can grow indefinitely, whereas a mistake can only go to zero. It only takes a few home runs to erase hundreds of strikeouts. Even amidst his success picking companies, he still recommended that everyone simply invest in a market fund.
This happens all the time in business as well. We all compete against something or someone. Sometimes, your competitor is selling the exact same item as you. Sometimes they’re selling a competing item. Sometimes, you’re competing for people’s attention. And while it’s important to keep an eye on your competition, the most dangerous thing you can do is try to mimic your competition.
My family’s businesses were extremely successful. Not every single year, but we had many more good years than bad. And over the long term, that compounded into immense success for us and our staff. We did that by always keeping both eyes on our own companies. Yes, there was definitely a pile of luck throughout the years. But we never tried to copy anyone else. We always paid attention to what competitors were doing, but we didn’t make decisions based on that knowledge.
On the contrary, there were many companies in our industry that attempted to copy our business model. In fact, there was even a competitor who called me to tell me exactly that.1 That competitor didn’t last very long. Our business model worked great for us, but it’s possible that it only worked great for us. It’s also possible that it was all luck and we actually had no brilliance at all.2 The environment often matters more than the strategy. Timing, the economy, customer behavior, regulation – it all plays a role and none of us can influence those factors. A business that succeeded in a low interest rate environment might fail when rates increase. A strategy that worked in a fast-growth market may not be able to handle stagnation. And a model that worked when labor was abundant could collapse when the labor market tightens.
We should always learn from others’ successes and failures. Even those that fail potentially had great strategies. Sometimes, they did everything right but just hit a speed bump from which they couldn’t recover. Don’t get blinded by others’ success. Focus instead on process. You always see the one business that made it, but you don’t usually see the ten that tried the same strategy and disappeared.
Don’t mistake survivability for repeatability. Some strategies only work if nothing goes wrong. And there is often a tenuous fragility hiding just behind that success. What looks brilliant at scale may actually be lethal without a safety net.
Instead, you should study broadly, borrow selectively, and question relentlessly. The goal isn’t to find someone who beats the market. It’s to understand what would have happened if they didn’t.
To this day, I still don’t understand why someone would tell you they’re copying you. If you’re going to reverse-engineer a strategy, at least pretend you discovered it yourself.
Nah, it’s definitely because we were geniuses. Right? Right? Hello?