During a student visit in 2005, Warren Buffett was asked if investors were more knowledgeable today than 10 years ago, and this was his response:
"There is no doubt that there are
far more 'investment professionals' and way more IQ in the field, as it didn't
use to look that promising. Investment data are available more conveniently and
faster today. But the behavior of investors will not be more intelligent than
in the past, despite all this. How people react will not change – their
psychological makeup stays constant. You need to divorce your mind from the
crowd. The herd mentality causes all these IQ's to become paralyzed. I don't
think investors are now acting more intelligently, despite the intelligence.
Smart doesn't always equal rational. To be a successful investor you must
divorce yourself from the fears and greed of the people around you, although it
is almost impossible.
Take Long Term Capital Management. They
had 100's of millions of their own money, and had all of that experience. The
list included Nobel Prize winners. They probably had the highest IQ of any 100
people working together in the country, yet the place still blew up. It went to
zero in a matter of days. How can people who are rich and no longer need more
money do such foolish things?"
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