Success Attribution Bias

Michael Sonnenfeldt, founder of Tiger 21, shares insights about entrepreneurial success attribution and the challenges of wealth preservation. He emphasizes that many successful entrepreneurs incorrectly attribute their success purely to skill, leading to overconfidence in future ventures and investment decisions.

Key Points:

• Success Attribution:

  • Many entrepreneurs systematically overestimate their own skills after success
  • The number of people with multiple successes is dramatically smaller than those with one success
  • Having 3-4 successes is rare (about 1 in 1000 entrepreneurs)

• Post-Success Challenges:

  • Great entrepreneurs might only qualify as mediocre investors
  • Many don't realize how poorly they are as investors because business profits covered up their investment losses
  • The intellectual challenge of managing wealth can be harder than running the original business

• Statistical Reality:

  • Multiple successes are increasingly rare:
    • Two successes is dramatically less common than one
    • Three or four successes gets down to "1 in 1000 entrepreneurs"
  • Many successful people were "lucky" alongside having a plan

• Common Mistakes:

  • Assuming they can replicate success easily
  • Overconfidence in investment abilities
  • Not recognizing the role of luck in their success
  • Taking on new ventures without proper experience or understanding

• Learning Process:

  • It takes about 5 years to develop a "modicum of confidence" as an investor
  • The transition from entrepreneur to investor requires different skills:
    • Entrepreneurs focus on single opportunities and are highly emotional
    • Investors need to be dispassionate and maintain diversified portfolios

• Risk Management:

  • Success in one venture doesn't guarantee success in the next
  • Important to recognize limitations and adjust risk accordingly
  • Need to develop new skills for wealth preservation