ADHD Investing

Top 2009 Resolution: Don’t Be Stupid
by Daniel Henninger
Wall Street Journal
January 8, 2008

Bernard Madoff revealed our thoughtless ways.

adhd-investingBack in olden times, mankind found it useful to live by mottoes. A motto reduces the helpful lessons of life to three or four words, maybe two, as in the Boy Scout motto: Be Prepared. Or, apropos now: Look before you leap.

The most famous motto in our time has been Google’s Don’t Be Evil. I’m not sure what that means exactly, but here’s a motto for the next four or five years: Don’t Be Stupid.

It would not have occurred to me to posit Don’t Be Stupid as a motto for our times had not 2008 ended with the Bernard Madoff story. Up to then, we were all preoccupied with the economic meltdown that began in mid-September with the collapse of Lehman Brothers and other household gods of global finance.

The economic crisis, originating in the subprime mortgage lending phenomenon, was said to be complex. Madoff’s story, however, was simple. For years, uncounted numbers of the most sophisticated people here and in Europe conveyed to Mr. Madoff tens of billions of dollars because this solitary investor, unlike virtually every other professional investor, achieved returns in excess of 10% annually in all economic seasons.

Together, subprime and Madoff have produced the Year of What Were They Thinking? As the New Year separated from the spent canister of 2008, conventional wisdom held that financial lessons had been learned. Boards of directors would exercise greater oversight. Sober investment management would replace bonus-baby overreaching. Due diligence would return from exile. Mania would give way to Protestant virtue.


I’m still mesmerized by the virtually uncountable number of intelligent individuals worldwide who were revealed as dumb in 2008. What happened to them? What if mass dumbing down is now the norm?

Avarice explains a lot of bad behavior. So does the Federal Reserve’s free-money interest rates, inducing a mania of moral hazard. More intriguing to me than the standard theory of manias and bubbles is the supersized human error rate of the past several years. The decline and fall of so many American financial institutions in one year can’t be written off to “mistakes.” These were cataclysmic mistakes.

Only one other area of modern life produces this unprecedented error rate: the World Wide Web. Could it be that in the world of money, the information highway was the road to ruin —

Illuminated screens are fun — and pernicious. People have long believed that if they see or hear something on TV, it must be true. This credulity has transferred exponentially to the PC screen, the cell-phone screen and email. Sophisticated people send fake news stories or photographs from the Web to everyone on their distribution list, until someone debunks it. Then it happens again. Something about information on screens reduces skepticism.

Modern technology, which is essentially infinite button-pushing, also fills one’s days with tiny errors surfing the Web, texting or punching TV controllers. It is a trail of constant error. One gets desensitized to errors because, like mice in a maze, another “out” from one’s misstep is just another click away.

That we make these unending miscues with the small stuff may not matter, but rewiring the brain to accommodate relentless error may soften us up to making slovenly mistakes with things that do matter. The habits beneath due diligence fall away as we play in the Web’s surf.

The modern investor class, whether at Citigroup, Lehman or retirees at home, have become Googling zombies. Financial-industry workers, as elsewhere, chase data through thousands of screen changes, even as they are overwhelmed by emails. They do it because accessing new screens is more fun than the drudgery of time spent on one task. It used to be called “focus.”

This undifferentiated world of work and play is increasingly thoughtless. As in, thought-less. Accessing such massive amounts of variable information wouldn’t matter if workers were taking time to stop and produce useful thought about the numbers or words on their screens. Who has time to do that, or even wants to? Keep clicking.

As the subprime mania raged through the world’s trading rooms — and this mess was a screen-driven phenomenon — time-pressed investment managers stared at the illuminated numbers and assumed the data and models were, you know, OK, because surely somebody else, somewhere, must have taken the time to check it out. The one man who understood humanity’s slack focus better than anyone was Bernard Madoff.

Looking out at the events transpiring through the world nowadays, it might be nice if people lived by their understanding of Don’t Be Evil. Next January is likely to be better, though, if most of us just keep it simple. Don’t be stupid.