Different Kinds of Smart: How Great Thinkers Avoid the Pitfalls of Overconfidence

“The older I get the more I realize how many kinds of smart there are. There are a lot of kinds of smart. There are a lot of kinds of stupid, too.” – Jeff Bezos

The smartest investors of all time went bankrupt 20 years ago. They did it during the greatest bull market of all time. The story of Long-Term Capital Management is more fascinating than sad. That investor 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 Long-Term Capital Management (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 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.

A few different kinds of smarts:

1. Accepting that your field is no more important or influential to other people’s decisions than dozens of other fields, pushing you to spend your time connecting the dots between your expertise and other disciplines. Being an expert in economics would help you understand the world if the world were governed purely by economics. But it’s not. It’s governed by economics, psychology, sociology, biology, physics, politics, physiology, ecology, and on and on.

2. A barbell personality with confidence on one side and paranoia on the other; willing to make bold moves but always within the context of making survival the top priority.

A few thoughts on this:

“The only unforgivable sin in business is to run out of cash.” – Harold Geneen

“To make money they didn’t have and didn’t need, they risked what they did have and did need. And that is just plain foolish. If you risk something important to you for something unimportant to you, it just doesn’t make any sense.” – Buffett on the LTCM meltdown.

“I think we’ve always been afraid of going out of business.” – Michael Moritz explaining Sequoia’s four decades of success.

A key here is realizing there are smart people who may perform better than you this year or next, but without a paranoid room for error they are more likely to get wiped out, or give up, when they eventually come across something they didn’t expect. Paranoia gives your bold bets a fighting chance at surviving long enough to grow into something meaningful.

3. Understanding that Ken Burns is more popular than history textbooks because facts don’t have any meaning unless people pay attention to them, and people pay attention to, and remember, good stories.

A good storyteller with a decent idea will always have more influence than someone with a great idea who hopes the facts will speak for themselves. People often wonder why so many unthoughtful people end up in government.

The answer is easy: Politicians do not win elections to make policies; they make policies to win elections. What’s most persuasive to voters isn’t whether an idea is right, but whether it narrates a story that confirms what they see and believe in the world.

It’s hard to overstate this: The main use of facts is their ability to give stories credibility. But the stories are always what persuade. Focusing on the message as much as the substance is not only a unique skill; it’s an easy one to overlook.

4. Humility not in the idea that you could be wrong, but given how little of the world you’ve experienced you are likely wrong, especially in knowing how other people think and make decisions.

Academically smart people – at least those measured that way – have a better chance of being quickly ushered into jobs with lots of responsibility. With responsibility they’ll have to make decisions that affect other people. But since many of the smarties experienced a totally different career path than less intelligent people, they can have a hard time relating to how others think – what they’ve experienced, how they see the world, how they solve problems, what kind of issues they face, what they’re motivated by, etc.

5. Convincing yourself and others to forgo instant gratification, often through strategic distraction.

Delayed gratification isn’t about surrounding yourself with temptations and hoping to say no to them. No one is good at that. The smart way to handle long-term thinking is enjoying what you’re doing day to day.

(Courtesy Morgan Housel)