AI Summary #
The host emphasizes the distinction between intelligence and smarts, highlighting that intelligence typically refers to technical skills, such as problem-solving, memory, and logical thinking, whereas smarts involve emotional intelligence, social awareness, empathy, and understanding of human behavior.
Key takeaways include:
- Intelligence is often valued over smarts in educational and professional settings, but smarts are more crucial for long-term success and happiness.
- Schools focus on teaching and measuring intelligence, while real-world success relies heavily on smarts like emotional intelligence, social awareness, and empathy.
- The host shares examples of intelligent individuals who have struggled to succeed, such as the example of George Soros buying into stock market bubbles due to his understanding of human psychology.
Actionable advice includes:
- Recognizing that humans are complex, emotional, and influenced by various factors, rather than just being “spreadsheets” that can be analyzed using formulas.
- Focusing on developing smarts like empathy, social awareness, and communication skills, which are essential for success in personal and professional relationships.
- Prioritizing storytelling and effective messaging to convey ideas and values, as this is a key skill for building trust and loyalty with others.
Notable quotes include:
- “Logic is an invention of man and may be ignored by the universe” (Will Durant)
- “Honesty is the best policy, not morals” (Benjamin Franklin, quoted by Charlie Munger)
Overall, the host emphasizes the importance of developing smarts over intelligence and recognizing the value of emotional intelligence, social awareness, and effective communication in achieving long-term success and happiness.
AI Transcription #
This week I want to talk about a really important distinction to make in life.
It’s just the idea that there are some people who are intelligent, but they don’t have a lick of smarts in them.
And their ability to succeed in the world might surprise you on the downside.
And then there are other people who are not very intelligent, but they gush smarts.
And their potential will surprise you on the upside.
On rare occasions you meet people who are both intelligent and smart, and they run laps around everybody.
It’s just this idea that there is a difference between intelligence and smart.
And I would define it like this.
Some people understand technical details, but smart people understand emotional details.
Maybe another way to define it is this.
People who are intelligent usually have a good memory, they’re good with logic, they’re good with mass skills, they’re test taking ability, they’re good at following rules, that sort of thing.
Smart people on the other hand, it’s a very different set of skills.
They tend to have a high degree of empathy, bullshit detection, organization, communication skills, persuasion, social awareness, understanding the consequences of their actions, that’s what smart people tend to have.
It’s very different than intelligence as we typically measure it.
Both intelligence and smarts are really important, of course.
But there’s a critical difference in how each of them are valued by the world.
Schools are very good at teaching and measuring intelligence.
So that’s what people tend to value and aspire to.
But in almost any field that you look at, smarts is what gets rewarded long term.
Like of course you cannot measure something like empathy, like you can SAT scores.
So it’s not surprising that intelligence is given more weight on your resume than something like smarts will ever be.
But who do you think is more likely to succeed in life?
The person whose main skill is just memorizing formulas the night before the test, or somebody who can instantly relate to the emotions of their co-workers and their customers and their spouses and their friends, they get so obvious which one of those skills is more valuable in the real world.
And this is why everybody knows and has seen the intelligent jerk who’s gone nowhere in life.
But at the same time there are so many middleing students who struggle through calculus.
But they go on to live very successful and happy lives.
I mean if you think about this idea that the most important decision that most people will ever make in their life is whether and when and whom to marry.
So are there decisions that you make is going to be more consequential to your life’s success and happiness than that?
But that’s not a topic that is ever taught in schools.
And it can’t be, how could you possibly teach that topic you cannot distill it down to a formula that you can ask somebody on a test.
It’s a decision that requires lots of smarts, but very little intelligence.
So look, the core here, it’s just realizing that humans are not spreadsheets.
They are emotional and hormonal and misinformed, status seeking insecure creatures who are just doing their best to make it through the day.
And so if you have to choose between understanding how the world should work in theory versus how it actually works in practice, you should always lean towards the latter.
It’s like historian Will Durant once said, he said, quote, logic is an invention of man and may be ignored by the universe.
That I think is so smart.
Here’s an extreme example of what I mean.
George Soros, the investor says that whenever he sees a bubble in the stock market, he rushes into buy it.
Now if you are an intelligent person that might seem crazy to you, why would you purposely want to buy an overvalued investment?
But if you are a smart person, maybe this starts to make sense.
Because you know that bubbles are likely to grow larger and last longer than most people imagine.
You understand what’s going through people’s minds, and you know that investors will keep frantically buying for some period of time, not because the numbers make sense, but because their neighbor got rich in the stock market and watching that will make them spiral down into a black hole of jealousy and bad decisions.
Soros, when he was talking about why he buys bubbles, he said that is not irrational.
Because he understands the mindset of other people.
But please, I’m begging you don’t try that.
You’re probably not as smart as George Soros.
But I think this idea of just making a distinction between intelligent and smart, there are lots of examples like this.
And here are a few other smart traits that I think are very hard to measure.
Number one is accepting that people who have lived different lives than you want different things and will see the world differently than you do.
So it looks like debates between people are often just people with different lived experiences talking over each other.
Henry Ford once said quote, if there is any one secret of success, it lies in the ability to get the other person’s point of view and to see things from their angle as well as your own.
Now the purely intelligent person will find this hard to grasp.
Because if you think there is one right answer to every problem, then you insist on just bang through more debate until the other side agrees with you.
It takes smarts to accept that for most problems in the world, the quote unquote right answer is one that best promotes your individual well-being and fits your experience of how the world works.
And since everybody has different needs and experiences, the only way to move forward and get things done is to tolerate and to work with some views from other people even when you would disagree with them.
And the outcome, if you can pull this off, is the skill of getting along with people who you disagree with.
That is indispensable.
Okay, number two, an awareness that being nice doesn’t mean being weak.
It’s actually a self-istrategy for gaining people’s cooperation over time.
Back in 1998, the hedge fund long-term capital management was collapsing and it was threatening to take down all of Wall Street in its week.
So in response, 14 Wall Street banks stepped in to collectively bail out the hedge fund and halt the panic.
In every big bank on Wall Street participated in the bailout, except for Bear Stearns, whose CEO got named Jimmy Kane allegedly responded by saying, no effing way to the request.
Now 10 years later, Bear Stearns itself was teetering on the edge of bankruptcy.
And guess how many other Wall Street CEOs were willing to step up and land at Jimmy Kane a hand?
And Charlie Munger was pointed out that Benjamin Franklin did not say honesty is the best morals.
He said honesty is the best policy.
It’s what’s going to help you and put you in the best position, earning you the most money in the long run.
And there was a corollary in there, I think, with kindness.
There are two reasons to be kind to everybody.
One is moral and the other is selfish.
Secondly, you should do it because you’re empathetic and you’re not a jerk.
That’s the obvious one.
Selfishly, you should do it because it is so easy to underestimate how many people you may eventually rely on to help you.
And you will only gain their cooperation if you remain in their good graces.
Alright, number three, multidisciplinary thinking.
I for the last couple years have served on the board of directors of the Marquell Group.
And someone recently asked me what I’ve learned from Marquell CEO Tom Gainer, who is truly one of the most accomplished investors of recent decades.
And my response is that no matter what we are talking about on the board, Tom has a perfect analogy from something that is totally unrelated.
If we’re talking about insurance reserves, Tom will say something like, oh, you know, this reminds me of that scene from the sound of music.
And if we’re talking about something like stock market valuations, he might say, oh, it’s kind of like Winston Churchill used to say, and in each of these cases, the analogy that he uses gets straight to the topic at hand.
And I think this kind of communication is more than just entertaining chat.
I think Tom is a good investor because he understands how the world works.
It’s connecting dots between various fields, which is so much broader than just understanding finance.
There are a lot of people who understand finance and they might be very intelligent, but understanding how the world works and connecting the dots between various fields that requires smarts.
I think there are too many intelligent people who become siloed in their field and they become oblivious to how interconnected the world is.
Next is true independent thinking.
Even Kelly has this great idea that you are only thinking independently if your views on certain topics cannot be predicted from your views on other topics.
Now very often, many people’s views can be predicted because true independent thinking is so rare.
So tell me your views on immigration and I can probably guess your views on abortion.
Tell me who you voted for president and I can probably guess whether you think today’s economy is strong or weak.
When your views on certain topics can be predicted from unrelated statements, there’s a good chance you have outsourced part of your critical thinking to tribal affiliations.
Now true independent thinking is rare because most people would rather be comfortable than right and there is comfort in knowing that you are a good standing member of your tribe.
Thinking independently also doesn’t mean that you are right because the crowd is usually pretty close to accurate and going against the tribe can also be interpreted as arrogance but suddenly you might look a lot like Jimmy Cain did with bare stirons.
But as a poet Kipling wrote quote, if you can talk with crowds and keep your virtue or walk with kings or lose the common touch, you are on your way to greatness.
And one of the ways to test that is asking whether there are people who you agree with on some topics but not others.
If there is someone who’s views you agree with on every topic, be careful.
And if there is someone who’s views you disagree with on every topic, be even more careful.
I think my own dog, who by the way is such a good girl, is crazy and makes bad decisions half the time.
So I shudder when people cannot find a single fault in their favorite politician or their favorite investing guru, it makes no sense.
Alright, last, recognizing that the best story wins.
Not the best answer, not the accurate answer, not the answer that people need to hear.
The winner in almost any debate or topic is whoever gets people to pay attention and nod their heads in agreement.
The best story wins.
Now, if you are merely intelligent, you might focus all of your effort on finding the precise truth.
And if you’re smart, you will focus just as much effort on delivering an effective message around that truth.
Realizing that the most powerful truth does no good if you can’t get people to pay attention to it.
A doctor once told me that there is a big difference between an expert in medicine and an expert in health care.
An expert in medicine knows all the right answers out of the medicine textbook.
They can diagnose with precision and they are up to date on all the latest treatments.
But an expert in health care is very different.
An expert in health care understands that medicine from the patient’s point of view is intimidating and confusing and expensive and time consuming.
And so nothing you do as a doctor and nothing you prescribe as a doctor matters until you address that reality with patients.
Because even the perfect solution and the perfect treatment makes no difference to the patient who doesn’t follow it.
I think it’s so similar in investing.
Hedge Fund manager Kyle Bass once summed this up well and he said quote, it is easy to maintain conviction.
It is harder to maintain your investors.
The most successful investors tend to be expert communicators.
Because they have to compel their own investors to stick with them during inevitable periods of underperformance.
So Warren Buffett, Sequoia, even Vanguard, they are so skilled intentionally so at delivering an effective message beyond just the numbers that they put up.
So Warren Buffett is an amazing writer.
Charlie Munger is an amazing writer.
Seth Claremont, John Bogle, Joel Greenblatt, Howard Marks, they are all amazing writers.
But I don’t think that is coincidence.
These investors ability to write well, let them effectively tell their stories, and to set expectations, and to reassure investors.
That made their investors more likely to stick around when times got rocky.
It is so hard to teach something like that.
Storytelling is a soft and emotional skill.
It’s not found in intelligence.
It’s found in smarts.
That’s it for this week.
Thanks again.
We’ll see you next time.