Last weekend’s Intelligent Investor column looked at the extreme difficulties of disentangling skill from luck when you are evaluating investment performance. It’s the topic of an excellent new book by Michael Mauboussin and a subject of endless fascination – and frustration – to investors.

We tend to think of the greatest investors – say, Peter Lynch, George Soros, John Templeton, Warren Buffett, Benjamin Graham – as being mostly or entirely skillful.

Graham, of course, was the founder of security analysis as a profession, Buffett’s professor and first boss, and the author of the classic book The Intelligent Investor. He is universally regarded as one of the best investors of the 20th century.

But Graham, who outperformed the stock market by an annual average of at least 2.5 percentage points for more than two decades, coyly admitted that much of his remarkable track record may have been due to luck.

In the Postscript chapter of The Intelligent Investor, Graham described “two partners” of an investment firm who put roughly 20% of the assets they managed into a single stock – a highly unusual departure for the conservative managers, who normally diversified widely and seldom invested more than 5% or so in any one holding.

The stock went on to a more than 200-fold gain, and the investment managers didn’t sell it – even though they couldn’t justify keeping it on the basis of their typical standards of valuation.

In short, they broke their rules to buy the stock, and they broke their rules to keep it.

Graham added:

Ironically enough, the aggregate of profits accruing from this single investment decision far exceeded the sum of all the others realized through 20 years of wide-ranging operations in the partners’ specialized fields, involving much investigation, endless pondering, and countless individual decisions.

Are there morals to this story of value to the intelligent investor? …[One] is that one lucky break, or one supremely shrewd decision — can we tell them apart? — may count for more than a lifetime of journeyman efforts.

The company was Geico. The investment fund was Graham’s own, Graham-Newman Corp. The value of the holding went from a little over $700,000 at the outset to more than $1 billion at its peak.

In a footnote, Graham explained that the original deal to buy Geico nearly fell apart when he and his partner, Jerome Newman, in negotiations to buy the stock from Geico’s founders, quibbled over a $50,000 accounting entry. “By dumb luck they got what they insisted on,” he recalled.

The next time you find a fund manager boasting about how skillful he is at picking investments, remember that the great Benjamin Graham credited much of his own phenomenal success to luck alone.