Script(ish)

Today we’re going to talk about something a little different from what we usually do. Typically on this channel, I talk about price action and I talk about the psychology of the markets and I tend to focus more on whatever the sheep are doing … the plankton … the bandwagoners … whatever you want to call them… The people who don’t have their own opinions, because those are the people that you can make money off of.

It’s an important group to talk about because in a lot of ways, they are responsible for the overhyping we see in the space. They’re the ones who get their friends hooked, who get excited when they make a lot of money and tend to be fairly gullible when it comes to some of the claims that people make about what blockchain technology can do.

However, in this video, we’re going to talk about the other side of the spectrum. We’re going to talk about the individuals who do their own research, who have their own opinions and who aren’t afraid to disagree with key opinion leaders, even some of the most well respected ones like Andreas Antonopoulos for example.

This is a much smaller group of course and I have much more respect for these individuals. However, there are some serious dangers associated with this group from an investing perspective. There is a such thing as being too smart for your own good, and while it may seem counter-intuitive, I hope to illustrate this rather critical flaw typically associated with more intelligent people.

Let me start off by saying that intelligence is overrated and this was actually a lesson passed onto me by the father who … by all standards, most would consider a genius. And this isn’t just me hyping up my father or anything because he’s family – it’s from watching him time and time again do things an ordinary person wouldn’t even be capable of thinking of in the first place, no less actually doing it. And while this description may not convince you (given it’s pretty vague), the goal of this video isn’t to convince who or what my father is, rather to demonstrate that the notion of intelligence being overrated, was a lesson I learned from a genius.

One of the more interesting phenomenon that occurs for financial advisors is how doctors and lawyers tend to be a royal pain in the ass when it comes to investing. I don’t know if there is a paradox of intelligence where the more intelligent you are, the more inclined you are to make high-impact foolish decisions, but there really should be.

What typically happens with these doctors and lawyers … or whatever equivalent profession you want to insert here … is they are more likely to believe that with enough hard work and research, you can generate excess returns… and that sounds perfectly fine, right? I mean, that’s exactly what we’re trying to do here on this channel in a number of ways.

But just as with anything else, there’s always a fine line. What often happens in reality is intelligence turns into confidence which then turns into either greed or arrogance. When I said earlier that intelligent individuals tend to make higher impact foolish decisions than the plankton, it isn’t because of actual stupidity.

It’s because they commit more to their decisions as they have higher levels of confidence in themselves which can often result in arrogance and close-mindedness when it comes to their investments. The absolute worst trait you can have when it comes to investing is arrogance and typically arrogance occurs more frequently in the intelligent people because they have a reason to be, even though they frequently don’t see themselves as arrogant.

Again, it’s a very thin-line – There is a difference between confidence and arrogance in investing just as there is in love or in friendships or anything else. The important question you should always ask yourself is how open minded am I really? Is there any feasible, realistic event that could change my mind? Would I ever consider that I have gravely misunderstood the probabilities of success vs. failure? Would I ever consider that I gravely over or underestimated the timeline it would take to achieve peak market penetration? Would I ever consider that I was wrong at understanding the psyche of the greater investor economy?

Unfortunately, most people can’t answer these questions honestly because they don’t know how to find balance between having confidence in their own opinion and being open-minded. I know this is a deep level topic – but this is at the very root of all personal investing. I believe that the reason passive investing is empirically far superior to active investing is not necessarily because it is objectively better, but because it removes almost all elements of human behavioral tendencies.

The point is, if you are someone who is very intelligent and who does their own research and has their own opinion, you are unique and part of a much smaller group of individuals. However, you are also more prone to make serious mistakes as although you might be more skeptical than others at first, you’re also likely to commit more (money, time, emotion, energy) if your own research validates an investment.

If you ever take a look at around some of the groups centered on a particular cryptocurrency, you’ll notice that it can become very cult-like, especially on the dedicated subreddits. There are some people within these communities that are exceptionally knowledgable, but are close-minded and are the most likely to get hosed whenever the hype in this space dies down.

If you’re one of these individuals, all I am going to say is be cautious of yourself. Most people refer to this close-minded, cultlike behavior as mental gymnastics, but that’s usually with the implication that the person involved justifies something that outsiders view as crazy.

I’m calling this phenomenon in investing mental Olympics – because everybody competes to find the most compelling data and research to support their investment and then shuns everyone else who hasn’t come to the same conclusion or (and this is an important one) doesn’t extend the same level of effort to reach a different conclusion. What do I mean by this?

I’ve seen situations where intelligent individuals dismiss another person’s opinion in the cryptocurrency space simply on the basis that the other person didn’t put in as much research as they themselves did. In other words, if you don’t know every single miscellaneous fact about a cryptoasset or the industry as a whole, there is a group of folks that will never validate your opinion even if that opinion is perfectly valid.

If you’re a part of that group, you’re likely a danger to yourself – even more than the plankton are danger to themselves. Don’t be a smart fool. Perhaps a more apt name for Benjamin Graham’s classic book “The Intelligent Investor” would be “The Wise Investor.” Know your limitations and invest wisely.