Even more disturbing, the LTCM principals interviewed on "The Trillion Dollar Bet" exhibited an almost other-worldly personal quality. How else to explain their insistence that their models still work, or their lack of regret and self-examination at nearly having brought the entire planet to the brink of financial disaster? In a memorable sequence one actually allowed the camera crews to capture him happily romping around, Sherman McCoy-like, a Greenwich golf course, while the narrator's rich, resonant voice described his former opulent lifestyle.

Such scenes force one to conclude that vast expanses of capital are managed by a type of idiot savant peculiar to the last half of our benighted century-someone who can derive complex canonical proofs as easily as they can brush teeth, but with the emotional intelligence of Mike Tyson and the appearance of having never cracked a history book.

What lessons does this saga provide the average investor? First, superlative mathematical ability confers no special advantage in the capital markets. Relying solely on your quantitative skills to invest successfully is like trying to fly an airplane based only on an exquisite knowledge of aeronautical engineering, ignoring the need of real-world flying experience and lacking a good sense of the fickleness of both aircraft systems and the weather.

This is not to deny that a certain amount of quantitative ability is necessary to invest properly. It's far more important, however, to possess an abiding respect for the unpredictability of the markets and a thorough working knowledge of financial history.

Copyright ©2001, William J. Bernstein

03/25/00
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