From 2000 to 2020, the S&P 500's compounded annual growth rate (CAGR) is about 6-7% (assuming dividend reinvestment). With a CAGR of 6.5%, every $1 invested in 2000 grows to about $3.50 by 2020.
Scenario A: I have outperformed the S&P 500 nearly every year for the last 20 years. My CAGR is about 12%. I turned every $1 in 2000 into about $10 by 2020.
Scenario B: I have occasionally outperformed and occasionally under-performed the S&P 500 for the last 20 years. My CAGR is about 5%. I turned every $1 in 2000 into about $2.70 by 2020.
In both of these scenarios, what method can I use to determine whether the performance was due to good luck, bad luck, good skill, or bad skill? What established methods do financial professionals use to separate luck from skill?
I understand that the calculation will require much more information than I have provided above. I assume that the established methods will take into account the portfolio concentration, year-to-year variance of performance, etc.
Are these methods easily adopted by individual investors?
Relevance to personal finance
Suppose I have been managing my own finances and picking stocks for the last 20 years. With the data of my own financial performance available, it is time to take a cold, hard, and honest look at whether or not the time and effort spent on stock picking over the last 20 years was actually worth it. Going forwards, I will need to know whether or not my past performance was mostly due to luck or due to skill. If due to bad skill (or bad skill with good luck), I could buy index funds, quit picking stocks, and use the free time for leisure. If due to good skill (or good skill with bad luck), I shall continue picking stocks.
(Note: My finance background is relatively weak. I remember hearing about "alpha" and "sigma" many years ago. They seem to relate to my question, but I am not familiar with those concepts to know for sure)