Saturday, July 26, 2014

Greed begets stupidity

Why do smart people do dumb things?

Long-Term Capital Management was a hedge fund that went bust in dramatic style in 1998, losing $4.6 billion in less than 4 months. One thing that distinguished it was the knowledge and experience of its 16 principals.

Here is what the legendary investor Warren Buffett [who led the company bail out] said about the 16 people involved:
they probably have the highest average IQ of any 16 people working together in one business in the country, .... those 16 have had extensive experience in the field in which they operate. ... probably 350 or 400 years of experience doing exactly what they were doing. ....  most of them had virtually all of their very substantial net worth in the business. They have their own money tied up, hundreds of hundred of millions of dollars of their own money tied up, a super high intellect, they were working in a field they knew, and they went broke. And that to me is absolutely fascinating. If I write a book, it’s going to be called “Why do smart people do dumb things?"  
To make the money they didn’t have and they didn’t need, they risked what they did have and did need–that’s foolish, that’s just plain foolish.
This reminds me of 1 Timothy 6 

 But those who desire to be rich fall into temptation, into a snare, into many senseless and harmful desires that plunge people into ruin and destruction. 10 For the love of money is a root of all kinds of evils. It is through this craving that some have wandered away from the faith and pierced themselves with many pangs.

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