[quote=SHILOH]It’s great to know that many of these brilliant minds cited in this article – that ran some of our top financial companies – are still in demand for their expertise.
I hope the lawsuits are pursued vigorously but some of these execs still think they are not blameworthy & it sounds like most of them are still sitting pretty on their piles of wealth.
For the rest of us, it’s nice to know you can still land a job after that magnitude of failure.[/quote]
I think one of the problems that we’ve witnessed in finance over the last 15 years or so is that “brilliance” was correlated with investment performance. In terms of IQ, Long Term Capital Management probably had a management team with one of the highest average IQs of any company on the planet. We know how that all turned out.
But the problem isn’t what you know. It’s the DIFFERENCE between what you ACTUALLY know and what you THINK you know that will largely determine your success over the long term. (I’ve discussed this here before.)
For example, let’s say your REAL investment knowledge can be summed up in one number. And let’s say that number is 100. But let’s say that you THINK your investment knowledge is actually 120. Well, eventually you’re going to blow up because you think you know more than you actually know. (We could call this a positive “Hubris Factor” of 20.)
Now, let’s say that your real investment knowledge is 80. But let’s say that you invest as if your knowledge is actually just 60. Well, chances are that you’re not going to blow up. You’ve recognized the limits of your understanding and will act accordingly (with more conservatism, presumably). (So, that’s a negative Hubris Factor of 20.)
This is why genius is of limited value in investing, unless it is accompanied by a rather large dose of humility, which is rare. Conversely, a “dummy” can be quite successful merely due to the fact that limitations have been recognized and blow-ups drastically reduced. (In some ways, this is Buffett’s idea of staying within a “Circle of Competence.”)
There are a lot of brilliant minds on Wall Street who have failed in spectacular fashion recently. They’re not stupid. They just thought they knew even more than they actually did.
