Was Warren Buffett's success predictable

Mainstream financial media thrives on providing a constant stream of commentary and analysis. Experts appear on screen to give the impression they know exactly why markets are moving the way they are. When the stock market goes up or down, they offer neat explanations, and we, as viewers, have come to expect this cause-and-effect narrative. It’s human nature to seek clear, simple reasons for complex events.

But this tendency to seek explanations, especially in highly complex systems like financial markets, is often misleading. Nassim Taleb, author of The Black Swan, calls this the “narrative fallacy” — our instinct to create stories to explain what we see, even when the evidence is thin. This craving for order might be helpful in simple scenarios (if you burn your foot near a fire, you’ll quickly make the connection), but it becomes unreliable in more complex, interconnected environments like the stock market, where random events play a far larger role than we’re comfortable admitting.

The Complexity of Financial Markets

Financial markets are dynamic, with countless factors influencing asset prices at any given moment. Even on a day of sharp market declines, for example, there are still two sides to every trade. Sellers may be urgently offloading shares, but buyers are equally confident they’re getting a good deal. This coexistence of conflicting motivations is what makes markets work, and it’s why explanations that simplify market movements to a single cause are almost always incomplete.

Yet financial commentators routinely oversimplify. They tie a market drop to a poor jobs report or a rally to a single earnings announcement. The reality is far messier. Relying on simple explanations in such a complex system leads to a skewed understanding of how markets function.

The Role of Chance in Success Stories

Our aversion to randomness isn’t limited to market events; it’s also present in how we view investing success. Warren Buffett, one of the most renowned investors of our time, has become a symbol of skill and insight. Countless analysts have studied his strategies and philosophies, painting a picture of his success as the natural result of a brilliant process. However, a more nuanced look at Buffett’s career shows that while he is highly skilled, he’s also been exceptionally fortunate. There were countless points at which his success could have been disrupted by bad luck, but it wasn’t.

Buffett himself has downplayed the idea that investing requires genius, noting that he built on ideas from others and followed a sensible, disciplined approach. But luck played a significant role too. In a field with a large number of investors, some are bound to be extraordinarily successful just by chance. The real question is whether anyone could have predicted Buffett’s exceptional success from the start.

Behavioral economist Daniel Kahneman calls this the “illusion of understanding.” When we look back at Buffett’s story, it seems inevitable because we know the outcome. But Kahneman points out that “the ultimate test of an explanation is whether it would have made the event predictable in advance.” Many investors have tried to emulate Buffett’s process, yet few have achieved anywhere near the same level of success. This suggests that luck, not just skill, played a meaningful role.

The Illusion of Predictability

The real risk of the illusion of understanding is that it distorts not only our view of the past but also our expectations for the future. If we believe we can make sense of every market movement that has already occurred, we start to believe we can predict what will happen next. But markets, like most complex systems, are inherently unpredictable.

Kahneman emphasizes that the belief in predictability is dangerous because it leads investors to overestimate their — or experts’ — ability to forecast market events. Research consistently shows that even seasoned experts struggle to make reliable predictions about economic and financial trends. Their track records often hover near chance, no better than flipping a coin.

This doesn’t mean expertise has no value, but it does underscore the limitations of forecasting, especially in the face of uncertain and changing conditions. Recognizing this limitation can help investors avoid the trap of believing in “sure things” or feeling overly confident in predictions that come packaged with compelling stories.

Takeaway: Embrace Uncertainty and Resist the Need for a Narrative

The next time an expert insists that a particular investment is certain to perform in a specific way, or that they have an ironclad explanation for recent market moves, remember the pitfalls of the narrative fallacy and the illusion of understanding. The truth is, no one knows with certainty what markets will do next. And while it’s human to want simple explanations, relying on them can lead to flawed decisions.

At WealthFactor, we believe in focusing on what can be controlled — diversification, low costs, and disciplined rebalancing — rather than speculating on market directions or chasing predictions. In investing, the most reliable approach is not to rely on expert forecasts or compelling stories, but to build a thoughtful, evidence-based strategy.