Jerry Seinfeld said one of his favorite comedy bits of all-time is Rich Man, Poor Man from Adam Carolla about things rich people and poor people have in common:
Here are some of my favorites:
You have an outdoor shower. Wealthy people have them by the pool or cabana. Poor people use a garden hose in the yard.
You know the going price of copper. You either trade it on the exchange or pull it out of abandoned streetlights.
You’re on a first-name basis with a Judge. Either you belong to the same country club or you keep seeing them at court appearances.
You spend Thanksgiving at a Soup Kitchen. You’re either handing out turkeys as a celebrity philanthropist or standing in line for a free meal.
You have a refrigerator in your yard. You either have a custom outdoor kitchen or a rusty appliance sitting in the front dirt patch.
You drive an obscure car. You either drive a vintage exotic car or a crappy brand that went out of business.
I see a lot of parallels between rich investors and poor investors as well.
I love this line from Spencer Jakab at The Wall Street Journal:
You probably aren’t rich or well-connected enough to have a 24 year-old incinerate your savings.
Let’s try some in this same vein:
You try to beat the market. You either get paid 2 & 20 for timing the market and trying to hedge headline risks or you’re looked down upon as an uninformed mom and pop investor.
You own a bunch of companies you’ve never heard of. The rich investor owns a private equity fund while the poor investor got a bunch of penny stock tips from their brother-in-law.
You own companies with no earnings. For the rich investor it’s called venture capital. For the poor investor it’s called a short squeeze on Reddit.
You get a margin call from using too much leverage. The rich investor is called a wunderkind while the poor investor is called a degenerate gambler.
One of the biggest differences between intelligent wealthy investors and everyone else is usually you get a second change after blowing up. According to Bloomberg, that’s what’s happening with Leopold and Situational Awareness:
From the article:
One week after Leopold Aschenbrenner’s hedge fund Situational Awareness nearly blew up, he’s already getting requests from investors looking to place more money with the artificial intelligence wunderkind.
His fund has seen a surge in interest from Silicon Valley investors looking to back the 20-something hedge funder in recent days, according to people familiar with the matter who asked not to be identified citing private discussions. So far, Situational Awareness has told investors that it’s not accepting new capital for now, the people said.
I don’t know if this is a good move or not on the part of these investors.
This guy is obviously insanely smart. He was accepted to an Ivy League school at 15, where he eventually became valedictorian. They call him the Nostradamus of AI. He’s very well connected in AI circles (his wife is chief of staff at Anthropic).
This could be the kind of situation where he pays his tuition to the market gods and learns from his mistake.
But it’s also easy to become blinded by genius. Sometimes the smartest people in the room make for terrible risk managers because they are so overconfident in their abilities.
Bethany McLean’s book, The Smartest Guys in the Room, about the Enron saga is a case in point about what happens when you rely too heavily on IQ:
When people describe Skilling they don’t just use the word “smart”; they use phrases like “incandescently brilliant” or “the smartest person I ever met.” Skilling in the late 1980s wasn’t a physically striking man — he was smallish, a little pudgy, and balding — but his mental agility was breathtaking. He could process information and conceptualize new ideas with blazing speed. He could instantly simplify complex issues into a sparkling, compelling image. And he presented his ideas with a certainty that bordered on arrogance and brooked no dissent. He used his brainpower not just to persuade but to intimidate.
Without question, Skilling’s formidable intelligence had a lot to do with turning Enron into a company that was successful — at least for a while. But he also had qualities that were disastrous for someone running a big company. For all his brilliance, Skilling had dangerous blind spots. His management skills were appalling, in large part because he didn’t understand people. He expected people to behave according to the imperative of pure logic, but of course, nobody does that (including, it should be said, Skilling himself).
Enron failed for a number of reasons. The biggest pitfalls were ego and overconfidence.
John Arnold recently tweeted, “My philosophy when I used to hire traders was that the optimal number of past blow ups was one.”
If Leopold wants to avoid blowing up in the future, he should lean more heavily on emotional intelligence rather than IQ.
Temperament is more important than brainpower in the markets.
Further Reading:
Investing is a Game of Survival