Tomo's Deep Problem: What Makes You Rich

More than a decade ago, in late 1990s, being an Internet investor was something more than just a rewarding hobby. For many of the 'fearless and greedy', it was a straight and sure path to fame and glory. The Internet (which in fact appeared much earlier) was on its onset, and numerous dot-com companies flourished. Late 1990s were by far not bad for 'tech' companies as well, which gained a lot too. In the years to come, one of them made it to the Guinness World Records, while another - to the Merriam-Webster Dictionary.

For those willing to get rich, the stock market seemed a perfect destination. The tech-heavy NASDAQ index (think of a thermometer in a room) was literally boiling, peaking at about 3500 in 1999. These were the days of triumph for optimists - those who believed the Internet was just about to change the world. And there were many optimists in the market these days.

At the very same time, an intelligent investor (perhaps someone inspired by Ben Graham's magnum opus) started to ponder some good reasons to be suspicious. The index has never behaved like this (it is not as high even now). The waves of Internet optimism were spreading in a matter of epidemy (after all, if everyone does it, it must be OK). The financial statements of some glorified companies started to seem somehow misleading. "Hey, there's clearly a huge bubble here!", as one may have concluded justifying a strong bet on NASDAQ's imminent fall.

Sadly, that was anything but a good strategy. In a matter of few months, the index actually peaked at about 5000, leaving some of the smarter-than-the-average-crowd investors with terrible losses. To make the sad story short, NASDAQ did in fact collapse dramatically soon, as a consequence of what was later called  The dot-com bubble, but, as Keynes had pointed out many years before, the market stayed irrational longer than some of its participants stayed solvent.

Surprisingly, it was a surprise (just like another crisis, according to Stiglitz)

So, does it imply that being a lemming pays better than being a thoughtful and intelligent investor?

No, not really. But it does imply that being an intellectual will not necessary make you rich. And that's is exactly what Tomo has told about.

So, if it is not about your analytical skills, education, and IQ (the latter being a pretty dubious proxy for intelligence), what does actually make you rich?

One may bring a concept of Emotional Intelligence (aka EI or EQ) as a possible alternative. In the most general sense, EI consists of a set of skills all of which have something to do with emotions - an ability to understand and manage them. It is EI which makes a person a 'nice guy' to talk to and which is your only prerequisite (except probably your appearance) to pass the 'Airplane test'. Moreover, EI definitely has something to do with charisma - a somehow strange phenomenon which still brings people like Ronald Reagan fame and glory and make millions adore them even decades after their best times (however, Reagan was not the worst president even taking some more objective criteria into account). Not surprisingly, soon after being coined by Daniel Goleman in his famous HBS article, EI became some kind of mainstream among business coaches and gurus of all kinds. However, the idea of Emotional Intelligence itself is far from being new. It was widely used, even though in a less explicit way by Stephen Covey in his bestselling self-help book. And even Sun Tzu, long before a first business coach appeared, appraised the idea of own emotional control and enemy's emotions manipulation.

I have my own experience to share as well. In the past few weeks, I attended a number of career events at Oxford. Some of them are very interesting. I know people who majored in Religion, Theology, Classics, History, and later ended up in companies like McKinsey, Deloitte, and J.P. Morgan (some of them got their offers in the midst of the recession). The most interesting one is an English guy who managed to accomplish a  'triple jump' - he changed his industry, position, and location (with the help of Oxford, of course!). Now he is an equity research analyst in Hong Kong. Before he was a PE teacher in an obscure comprehensive school somewhere in London.

One may argue that these people are extremely smart, and that's true. But we all may know some other smart Finance and Economics graduates and even MBAs who were actually shown the door at McKinsey, Deloitte, and J.P. Morgan.

All these people who have got the job definitely do have something in common. They all are extremely charismatic and nice to talk to.

So, that's exactly what business gurus and successful businesspeople keep telling us. Be charismatic, be determined, be hard-working, be a leader rather than a follower - and you will earn your place on Fortune's cover. If look back, for many of them it is true. Bill Gates is said to have been a real workaholic. Steve Jobs was an extremely hard boss to work with but, nevertheless, an extremely effective CEO as well.

However, there's something interesting to add to this. As Jerker Denrell, Professor of Behavioural Science at Warwick Business School (but he worked at Oxford by last year) argues, the very same qualities which are praised in successful businesspeople are also typical for ... losers. Put it plain and simple: we all know about very few successful entrepreneurs and leaders who worked hard and earned their fame and glory, but we have never heard about thousands of those who worked hard and failed. (To be a bit nerdy, that's called Survivorship bias).

OK. A stellar IQ is definitely good but not enough. An unparallelled charisma and leadership skills are superb but not enough. So, what's going to make us rich, after all?

There is one rich, famous, and charismatic guy (and yes, an Art History major!) who put it all plain and simple. Success takes not only intelligence, talent, and soft skills - it also takes luck.

There is a nice English word which can hardly translated into any other language - 'serendipity', which describes it best. It was a pure chance that Apple cofounders have met - nobody knows whether there would have been any Apple Inc. without two of them (or three, as some sources suggest).

Perhaps just a myth, Newton's original Apple story is one of the most well known examples of serendipity

However, as it was cleverly mentioned in a recent FT article, luck can be different. It definitely helps but it may not completely substitute hard work. There are different types of it, and what may be a real game changer in most cases is the so-called 'hybrid luck' (a term by R. Gopalakrishnan). As you work hard, you become more lucky because you encounter new opportunities which would have othervise been neglected.

It was a pure chance that Wilhelm Röntgen was the first to discover the X-Rays (and much more lucky than a Ukrainian guy). But Röntgen would have never got the very first Nobel Prize in Physics if he was not a hardworking and talented scientist.

So, what is to be done? If you understand Jefferson's quote ("I am a great believer in luck, and I find that the harder I work, the more I have of it") your strategy is pretty clear: work hard, know what you want and don't forger to look for opportunities. After all, we all have heard about one extremely unlucky but even more hardworking guy who does deserve his place on a $5 bill.