The headline may sound ludicrous, but I'm serious.
We've learned all our lives that smart equals rich. Think
back to the person in your high school designated "Most
Likely to Succeed." If the word "valedictorian" didn't come
to mind, I'd be surprised.
But there is a mountain of evidence suggesting that being
extra smart won't make you extra rich.
How the big boys fared ...
Repeatedly, at the highest levels of finance,
we've seen that smarts don't necessarily equal
riches.
The collapse of all-star hedge fund Long-Term Capital
Management gave us one object lesson. Despite boasting two
winners of the Nobel Prize in Economics, the fund blew up in
the late 1990's -- requiring a massive bailout by just about
every Wall Street heavy hitter, including
Goldman Sachs (NYSE: GS) and
JPMorgan (NYSE: JPM).
We saw another object lesson just a few years later in the
collapse of Enron -- the supposed "smartest guys in the
room."
And more recently still, we saw one unfold as the, as my
Foolish colleague Bill Mann would say, Harvard-stupid moves
of Wall Street threatened our entire financial system.
It ain't just the big boys ...
But just because you and I aren't running
hedge funds doesn't mean the same principle doesn't apply to
us.
Economist Jay Zagorsky ran a study to determine whether
brains translate into riches. His conclusion? "Intelligence
is not a factor for explaining wealth. Those with low
intelligence should not believe they are handicapped, and
those with high intelligence should not believe they have an
advantage."
In his book
Outliers, Malcolm Gladwell explored example after
example of how the successful became so. He concluded that
"once someone has reached an IQ of somewhere around 120,
having additional IQ points doesn't seem to translate into
any measurable real-world advantage."
Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B)
billionaire Warren Buffett seems to agree: "If you are in the
investment business and have an IQ of 150, sell 30 points to
someone else."
Is stupid the new smart?
You may notice a disconnect here. Those people
I quoted above are both extremely smart and pretty rich --
including the most successful investor of our time. Yet they
all seem to be saying that super-high IQs don't help you
become rich.
Where's the gap? One word: arrogance.
It wasn't excess brains alone that sunk Long Term Capital
Management, Enron, and the rest of the Wall Streeters. It was
excess arrogance
aboutthose excess brains -- believing that because
they were smart, they could do no wrong and anyone who
questioned them just didn't get it. Continued... |