Why Smart People Make Bad Decisions – a brilliant post by Morgan Housel

In another brilliant post, Morgan Housel brings some extremely important points:

  • One of the most persistent fallacies is the reflexive association of wealth with wisdom,” investor Ed Borgato tweeted this week.
  • Another is the association between intelligence and good decisions.
  • Intelligence increases the ability to fool yourself with elaborate stories about why something happened.
  • … the smarter and more creative we are, the more elaborate stories we can tell ourselves to justify our poor decisions
  • Intelligence pushes you toward the idea that complex problems require complex solutions.
  • Even when a problem requires a complex solution, the ability to communicate it in simple terms is indispensable to getting people to take you seriously.

Read the full post here

There are stories of some intelligent and brilliant investors in the book “Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget”. The list is quite illustrious.

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Lehman Brothers or Lehman Sisters

I am back tweeting about the book after a long gap. On this day, International Women’s Day, it would be appropriate to pay a tribute to all the wonderful ladies in my life.

In the year 2008, Lehman Brothers collapsed and filed for bankruptcy. Someone said, “It wouldn’t have collapsed had it been Lehman Sisters”.

Yes, women are believed to be wiser than men when it comes to financial decisions. Please read again – the key word is “wise”, and not “intelligent” or “knowledgeable”.

History suggests that eventually wisdom wins over intelligence. The men at Lehman Brothers, and even at many other firms were intelligent and knowledgeable. However, history also tells us that we don’t learn from history.

Lehman Brothers went bust in 2008. It was just a decade ago in 1998 that they had the best view of what went wrong with Long Term Capital Management. Lehman Brothers were custodians for LTCM.

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