Short read: Different Kinds of Smart

“The smartest investors of all time went bankrupt 20 years ago this week. They did it during the greatest bull market of all time.

The story of Long-Term Capital Management is more fascinating than sad. That investors with more academic smarts than perhaps any group before or since managed to lose everything says a lot about the limits of intelligence. It also highlights Bezos’s point: There are many kinds of smarts. We know – in hindsight – the LTCM team had epic amounts of one kind of smarts, but lacked some of the nuanced types that aren’t easily measured. Humility. Imagination. Accepting that the collective motivations of 7 billion people can’t be summarized in Excel.

“Smart” is the ability to solve problems. Solving problems is the ability to get stuff done. And getting stuff done requires way more than math proofs and rote memorization.”

He talks about five different types of ‘smarts’ that might actually be useful in the real world. We list them here but it is worth reading the article in its entirety as he elaborates on each of them:

“Everyone knows the famous marshmallow test, where kids who could delay eating one marshmallow in exchange for two later on ended up better off in life. But the most important part of the test is often overlooked. The kids exercising patience often didn’t do it through sheer will. Most kids will take the first marshmallow if they sit there and stare at it. The patient ones delayed gratification by distracting themselves. They hid under a desk. Or sang a song. Or played with their shoes. Walter Mischel, the psychologist behind the famous test, later wrote:

“The single most important correlate of delay time with youngsters was attention deployment, where the children focused their attention during the delay period: Those who attended to the rewards, thus activating the hot system more, tended to delay for a shorter time than those who focused their attention elsewhere, thus activating the cool system by distracting themselves from the hot spots.”

Delayed gratification isn’t about surrounding yourself with temptations and hoping to say no to them. No one is good at that. The smart way to handle long-term thinking is enjoying what you’re doing day to day enough that the terminal rewards don’t constantly cross your mind.”