At the Berkshire Hathway annual meeting, (the late) Charlie Munger said, “We are not that smart but we kind of know the edge of our smartness. But a lot of people who are geniuses, think they are a lot smarter than they are. What they are, is dangerous.”
One might be tempted to say that Charlie was just being humble. I don’t think so.
Most areas in business don’t require the kind of superlative intelligence you need, say, in hard sciences or math. You don’t require a 160 IQ.
In fact, when that kind of intellect was applied unbridled by common sense, we got Long Term Capital Management, which blew up billions of dollars over a few days. And one of the guys leading it was Myron Scholes, a Nobel Prize winner.
But it also doesn’t mean that businesses need stupidity 🙂
They need a different kind of intelligence, which can combine limited about of data with a lot of uncertainty, intuition, and plain guesswork. It requires you to know the difference between what you know and what you are assuming.
It needs mental models, which you have to keep changing. In fact, if Jack Welch was starting off today, he might be a big failure as a manager — because the model of firing people round after round may not work anymore (this is my speculation).
Businesses do need smartness but of another kind. And surprisingly, it is almost as hard to find as quant smartness.
– Rajan