Why Book Smarts Won’t Help You Build Wealth

September 13th, 2006

September 13, 2006 -

Everybody always thinks that smart people make money. But that’s far from the truth because smart people often lack the proper kind of intelligence. Probably less than 1/10^th of 1% in the world have the book smarts to become a nuclear physicist but every year, the CEO of Goldman Sachs will make 1,000 times more money than any nuclear physicist (unless that nuclear physicist is selling nuclear secrets to a rogue nation). In business school, unlike law school, there is virtually no correlation between graduation rank and future wealth. In fact, I’m convinced that all graduate level education, unless it is for a very specialized type of education such as medicine, engineering or law, is a waste of money and time when it comes to building wealth.

To build wealth, all you need is a healthy perspective towards problem solving and an even healthier dose of curiosity. How many trailblazers do you know in the business world? The type of person that makes you stand up and take note for truly pioneering a different way of doing something? People that are able to cultivate a vision that most people can only see after it has already arrived are the ones that ultimately build great wealth, not the ones that follow traditional paths and traditional lines of thinking. And this requires massive amounts of perspective and curiosity. Climbing the corporate ladder does not, but most people that follow this route never build substantial wealth.

If I were to hire employees to work for me, I would rather hire C+ students that never went to college but that had started their own successful businesses or had pioneered a new way of doing something rather than A+ students with PhDs that had never accomplished a single non-traditional pursuit in their entire lives. Why? Because I just don’t think book smarts are the “right” type of intelligence. In today’s global world, if you cannot adapt your business strategies to account for cultural differences, you will fail. If you surround yourself with “yes” men and don’t consider as many alternatives as possible in your decisions, you will fail. And in investing, if you don’t challenge the most widely accepted mantras and realize that they are sell-side mantras, and not strategies designed to maximize your returns, you will fail.

In all the above scenarios, a wide perspective will always create smarter decisions and cause one to challenge the flaws of widely accepted beliefs to arrive at better conclusions.

I agree J.S. Most corporate executives make hiring decisions based on traditional intelligence and can not spot true talent when they see it. Just look at the typical interview questions that they ask. Where do you see yourself in five years? What is your greatest accomplishment? Why did you leave your last job? All of these questions are much too focused on performance without any regard whatsoever for creative intelligence. While productivity is important, non-traditional thinkers are not what will put your company over the top.

Leonardo da Vinci, when he was commissioned by his benefactors to create a painting, never pigeon-holed himself into timelines for completion, claiming that creativity could not be rushed. Yet that is all most corporations do today. Rush people into production goals while stifling any creative capacities that may allow their best employees to shine. That is exactly why at every global investment house, you could take a 21-year old kid with great sales skills that could do the same exact job as many of the top producers.

The only reason he wouldn’t be as successful would be due to the fact that investors are more apt to trust someone with a little grey hair than a fresh faced kid. But think about this. Technology is the key today to identifying great investment opportunities. And who typically would be better equipped to utilize technology more efficiently. An old-school advisor in his or her 60s or a younger kid in his mid-20’s? Blind acceptance of traditionally-accepted beliefs wouldn’t allow you to consider this but perspective would.

In martial arts, when we spar, we focus on the hips to know when kicks are coming and on the elbows to know when punches are coming. Yet we don’t just focus on the hips and elbows. We focus on all five guards at once –top, middle, low, left and right – to predict an opponent’s point of attack. While training, my sensei used to perform this exercise where you would stand with an attacker flanking both your right and left guard. Then they would take one step backward until they disappeared from your line of vision.

During this whole exercise, you would be staring forward. Over time, everyone developed an ability to have the attackers increase the distance that they could step behind us before they disappeared from view. Portions of our typical “blind spots” actually came into view. We were increasing our perspective and thus developing our skills as a martial artist. When it comes to investing, an enormously large perspective, not a wealth of book smarts, is what will separate losses from gains, and small gains from phenomenal gains. In making investment decisions, book smarts and traditional thinking leave you with so many blind spots that you are bound to get hurt.

Maholo, KAEHO

Entry Filed under: Investment Psychology, The Biggest Investment Myths, The Zen of Investing