Jeff Aronson warns that prolonged success breeds dangerous overconfidence. When an investor is on a hot streak and feels they can do no wrong, their perception of risk becomes warped. This psychological shift, where they think "I must be good," is precisely when underlying risk is escalating, not diminishing.

There's a surprising disconnect between the perceived brilliance of individual investors at large, well-known private equity firms and their actual net-to-LP returns, which are often no better than the market median. This violates the assumption that top talent automatically generates outlier results.

During periods of intense market euphoria, investors with experience of past downturns are at a disadvantage. Their knowledge of how bubbles burst makes them cautious, causing them to underperform those who have only seen markets rebound, reinforcing a dangerous cycle of overconfidence.

In a world of highly skilled money managers, absolute skill becomes table stakes and luck plays a larger role in outcomes. According to Michael Mauboussin's "paradox of skill," an allocator's job is to identify managers whose *relative* skill—a specific, durable edge—still dominates results.

While Buffett's 22% annual returns are impressive, his fortune is primarily a result of starting at age 11 and continuing into his 90s. Had he followed a typical career timeline (age 25 to 65), his net worth would be millions, not billions, demonstrating that time is the most powerful force in compounding.

Many LPs focus solely on backing the 'best people.' However, a manager's chosen strategy and market (the 'neighborhood') is a more critical determinant of success. A brilliant manager playing a difficult game may underperform a good manager in a structurally advantaged area.

Top tennis players like Rafael Nadal win only ~55% of total points but triumph by winning the *important* ones. This analogy illustrates that successful investing isn't about being right every time. It's about consistently tilting small odds in your favor across many bets, like a casino, to ensure long-term success.

The underperformance of active managers in the last decade wasn't just due to the rise of indexing. The historic run of a few mega-cap tech stocks created a market-cap-weighted index that was statistically almost impossible to beat without owning those specific names, leading to lower active share and alpha dispersion.

Even if an investor had perfect foresight to buy only at market bottoms, they would likely underperform someone who simply invests the same amount every month. The reason is that the 'market timer' holds cash for extended periods while waiting for a dip, missing out on the market's general upward trend, which often makes new bottoms higher than previous entry points.