The smartest investors of all time went bankrupt 20 years ago this week. They did it during the greatest bull market of all time.
The story of Long Term Capital Management is more fascinating than sad. That investors with more academic smarts than perhaps any group before or since managed to lose everything says a lot about the limits of intelligence. It also highlights Bezos’s point: There are many kinds of smarts. We know – in hindsight – the LTCM team had epic amounts of one kind of smarts but lacked some of the nuanced types that aren’t easily measured. Humility. Imagination. Accepting that the collective motivations of 7 billion people can’t be summarized in Excel.
“Smart” is the ability to solve problems. Solving problems is the ability to get stuff done. And getting stuff done requires way more than math proofs and rote memorization.
Patrick O’Shaughnessy wrote an email to his book club years ago:
Consistent with my growing belief that it is more productive to read around one’s field than in one’s field, there are no investing books on this list.
There are so many smarts in that sentence. Someone with B+ intelligence in several fields likely has a better grasp of how the world works than someone with A+ intelligence in one field but ignorance of that field just being one piece of a complicated puzzle.
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Morgan Housel is a partner at The Collaborative Fund and a former columnist at The Motley Fool and The Wall Street Journal.