The legendary screenwriter William Goldman was said to have shouted “Nobody knows anything!” in relation to the prediction of movie sales…
Quoted in The Black Swan, by Nassim Nicholas Taleb
I recently presented my synopsis of The Big Short by Michael Lewis to an audience of sharp folks for the downtown edition of the Urban Engagement Book Club for Central Dallas Ministries. If you haven’t read the book, it is worth your time. (You might want to read my earlier blog post: A Quick Graphic Overview of The Big Short). Next month, for the same group, I am presenting my synopsis of Outliers by Malcolm Gladwell, so that was on our mind also. Especially this key idea, popularized by Gladwell: it takes 10,000 hours to get really world-class good at something. At anything.
During our discussion of the book The Big Short, one woman, who had read both books, noted that there weren’t enough people on Wall Street who put in the 10,000 hours they should have on the safety of and the implications of the investments they were selling. This failure was catastrophic!
And — this is a brilliant observation!
In The Big Short, Michael Lewis describes the work of Dr. Michael Burry, the one-eyed Doctor with Asperger’s, obsessed with “fairness.” He was one guy in a dark room, pouring over publicly available information. He began his successful investment career turning up “ick investments – taking a special analytical interest in stocks that inspire a first reaction of ‘ick.’” He then turned his attention to the current environment.
Here’s a key quote about Burry from the book:
He likely became the only investor to do the sort of old-fashioned bank credit analysis on the home loans that should have been done before they were made. He was the opposite of an old-fashioned banker, however. He was looking not for the best loans to make but the worst loans – so that he could bet against them.
What does this mean? I think it means this. There were plenty of people who put in the time, but not on the right aspects of “their job.” Wall Street had no shortage of people who put in many, many hours –10,000+ for sure – packaging, reconfiguring, selling these products. They may have been great “salesmen,” but not so great “is this what we should be selling for the good of our economy?” folks.
Here are some more quotes from The Big Short. Ignorance — true, dangerous ignorance — seems to be the common denominator.
“In Vegas the question lingering at the back of our minds ceased to be, Do these bond market people know something we do not? It was replaced by, Do they deserve merely to be fired, or should they be put in jail? Are they delusional, or do they know what they are doing?… There were more morons than crooks, but the crooks were higher up.”
It’s too much to expect the people who run big Wall Street firms to speak in plain English, since so much of their livelihood depends on people believing that what they do cannot be translated into plain English… No one at Morgan Stanley had a clue what risks Howie Hubler was running – and neither did Howie Hubler.
The big Wall Street firms had somehow become the dumb money. The people who ran them did not understand their own businesses, and regulators obviously knew even less. “No one knows what to do…” they had always assumed that there was some grown-up in charge of the financial system whom they had never met; now, they saw there was not.
The only solution to ignorance is education. You have to learn what you do not know.
Now, we are all ignorant, amazingly ignorant, about a lot of things. And most ignorance is acceptable ignorance. I do not know how to fly a plane, perform surgery, fill a cavity in a tooth, tie a scarf, drill for oil… the list of areas in which I am ignorant is really very, very long. And it is ok that I am ignorant about such matters.
But if someone hires me to do a job; if I am “perceived as expert” in a field; then it is my responsibility to be knowledgeable in this field. If I am not knowledgeable, if I am ignorant, then this is the kind of ignorance that leads to disaster.
This woman’s observation at our gathering was right on the money. We needed plenty of people investing 10,0000 hours on the right things. We needed an army of Michael Burrys. Instead, we got an army of greedy, ignorant salespeople, who never spent even 10 hours, much less 10,000 hours, on the “is this really the right thing to be doing/selling?” question.
And it cost us all – our entire economy, our entire country, our entire planet — a great deal.