Why Smart People Make for Dumb Investors
- Noah Avery
- Jul 11
- 2 min read
I'm not the first one to point this out. Warren Buffett and Charlie Munger were puzzled at this phenomenon. After watching over 100 hours of Berkshire Hathaway annual meetings, it seems their opinion on this subject is that intelligence, temperament and knowing your circle of competence are completely separate things.
"The person who has an IQ of 150 but thinks it is 170 will just kill you." -Warren Buffett
12 things I've observed in A student type of people who are dumb investors:
Overly driven by fear and they make their investment decisions from a fearful place.
Ego. Because they have been good at things like tests and people telling them they're smart, they think they can outsmart things out of their control.
Trying to predict the future because they think their judgement is better than most so they're allowed to take on impossible problems like knowing the future.
They think their intelligence is more important than their faults such as not being able to handle hardship and chaos.
Overly in their head and only taking action when everything makes perfect sense on paper. They confuse a sense of certainty with it being a good investment. What they often do is buy crummy assets that appear to make financial sense with the numbers, but the factors that don't show up on paper are terrible.
Sitting on the sidelines because they think their "high standards" for investing make them superior. They end up not taking action.
Trying to time the market.
Overly trusting statistics, surveys and analytical data as fact. Most times surveys are found to be completely inaccurate.
Making investing more complicated than it really is. They focus on the little things that aren't perfect instead of taking action on deals based on the main things such as income - expenses.
They try and make investing success fit into a fabricated model that they have thought up. An example is the "efficient market theory" which was a complete disaster.
They work extremely hard to maintain being "smart." When people work hard on things, they get attached to them being right. It's easy to get attached to things that don't matter only because a lot of time and effort was dedicated towards it.
They are unable to think outside the box. If the idea is outside of what is written in a book, then in their mind it must be wrong. They never think to question if the book itself was written by someone who knew what they were doing.
