There is no doubt that there are far more “investment professionals” and way more IQ in the field, as it didn’t use to look that promising. Investment data are available more conveniently and faster today. But the behavior of investors will not be more intelligent than in the past, despite all this. How people react will not change – their psychological makeup stays constant.
You need to divorce your mind from the crowd. The herd mentality causes all these IQ’s to become paralyzed. I don’t think investors are now acting more intelligently, despite the intelligence. Smart doesn’t always equal rational. To be a successful investor you must divorce yourself from the fears and greed of the people around you, although it is almost impossible.
Do you think Ponzi was crazy? The tech and telecom madness that existed just 6 years ago is right up there with the craziest mania’s that have ever happened. Huge training in capital management didn’t help.
Take Long Term Capital Management. They had 100’s of millions of their own money, and had all of that experience. The list included Nobel Prize winners. They probably had the highest IQ of any 100 people working together in the country, yet the place still blew up. It went to zero in a matter of days. How can people who are rich and no longer need more money do such foolish things?
Source: Student Visit
Time: May 6, 2005