Genius Does Not Always Understand Itself

Today on The Halftime Report’s fifth anniversary show, legendary investor Carl Icahn was asked for his thoughts about the market. At one point he says that he looks for “things that are obvious, but not apparent.” I thought this was an interesting sound bite, but what does that really even mean?  While many of the best investors are able to clearly communicate their philosophy, many of the investors that have earned their legendary status might not be able to get to the root of what drove their success.

This idea was explained perfectly in one of my favorite investment books, More Money Than God (emphasis mine):

To this day, Jones maintains that he anticipated the 1987 crash because his red-suspendered, twentysomething colleague, Peter Borish, had mapped the 1980s market against the charts leading up to 1929, seeing that the two lines looked the same, Jones realized that the break was coming. But this explanation of Jones’s brilliant market timing is inadequate, to say the least. For one thing, Borish admitted to massaging the data to make the two lines fit. For another, he predicted that the crash would hit in the spring of 1988; if Jones had really followed Borish’s counsel, he would have been wiped out when the crash arrived the previous October. In short, Jones succeeded for reasons that we will explore later, not for the reasons that he cites. The lesson is that genius does not always understand itself—a lesson, incidentally, that is not confined to finance. “Out of all the research that we’ve done with top players, we haven’t found a single player who is consistent in knowing and explaining exactly what he does,” the legendary tennis coach Vic Braden once complained. “They give different answers at different times, or they have answers that simply are not meaningful.

If you haven’t read this book, check it out, Mallaby brilliantly tells the definitive history of hedge funds.


More Money Than God