Sherlock Holmes Had Analytical Intelligence
Kennon-Green & Co. Global Asset Management, Wealth Management, Investment Advisory, and Value Investing

Intelligence, knowledge, wisdom, discernment and good temperament are five distinct attributes a man or woman can possess.  It is a common mistake to believe that they are interchangeable. They are not.  Although they tend to be related, it is possible to have one without the others.  How they interact with one another can determine the success or failure one experiences in life, to the extent we can control things, so it’s important to learn how to maximize your advantages and mitigate your flaws by becoming self-aware.

Intelligence

  • Sherlock Holmes Had Analytical Intelligence

    Sherlock Holmes is an excellent example of analytical intelligence driven by deductive reasoning and rationality. Image © Getty Images/Photos.com/Thinkstock

    Intelligence is the ease and speed with which one acquire new skills or knowledge.  There are several unique subsets of intelligence.  There is a theory there are eight types of intelligence but, personally, I prefer to think of them along these lines:

    • Analytical Intelligence involves understanding and processing data, such as mathematical formulas or literary subtext.  Sherlock Holmes is the very epitome of analytical intelligence.  Many sources break down analytical intelligence into distinct sub-categories, one for mathematics and one for linguistics.
    • Emotional Intelligence is the ability to understand and control what motivates people, how they work, what the general underlying tensions are, and danger that can’t be explained.  Emotional intelligence throughout history has been called “a woman’s intuition”, a “hunch” or a “gut feeling”.  Mary Poppins is the epitome of emotional intelligence.  She knows what the children in her life really need because she understands what is going on in their hearts and she is able to manipulate (not in a bad way) situations around her to achieve her goal, which is turning well-adapted children into responsible, loving adults.
    • Bodily-Kinesthetic Intelligence is the ability to control your body and interact with the world around you.  Great athletes and dancers are able to perform intricate tasks, whether diving for gold at the Olympics, playing soccer in the World Cup, or performing The Nutcracker at Kennedy Center.
    • Intra-Personal Intelligence is the ability to understand yourself, your motivations, the causality of your actions, and planning your own direction in life.  This is someone who has the ability to end up running everything because they were making sure every action was leading them to a specific goal, while others were blindly going through life.
    • Inter-Personal Intelligence is the ability to understand the interaction and workings of groups and social structures.  A typical example of high inter-personal intelligence is the high school student who is student body president, captain of the debate team, on homecoming court, writes for the school newspaper and leads group discussions during projects.
    • Spacial Intelligenceis the ability to mentally manipulate three dimensional concepts, which is a vitally important skill to engineers and artists, one picturing the inner workings of a motor the other visualizing the lines of a sculpture.
    • Musical Intelligence is the ability to process, reproduce, analyze and perform pitch, rhythm, melodic and harmonic structure, etc.
    • Natural Intelligence is the ability to understand one’s surrounding, adapt and survive.  Someone with high natural intelligence would be able to be dropped into a jungle and figure out the best way to survive and escape.

[mainbodyad]In my own case, when I talk about getting lucky with the genetic jackpot, I mean that in a lot of areas necessary to be successful in Western Civilization, I was given a hand at birth that made doing well a lot easier than it would have been otherwise.  My analytical intelligence is high, my emotional intelligence is high (though for most of my life, I kept this a secret, using it as a weapon at my disposal by feigning ignorance), my inter-personal intelligence is high, my intra-personal intelligence is high (I am, and have always been, my harshest, most impartial critic as I have zero ego investment in any particular behavior or belief), my spacial intelligence was tested about ten years ago and it was in the top few percentiles, my musical intelligence was sufficiently good that I went to school on a vocal performance scholarship and tested out of a few years of piano performance.

On the other hand, my natural intelligence and bodily-kinesthetic intelligence are terrible.  When nature or the gods were handing out their allocation of these areas, I was not favored.  If society’s rewards were determined by who could hit a ball or run fastest, I would be in the poorhouse.  Likewise, if we were dropped in a jungle, I wouldn’t have a clue what to do instinctively.  The result would be the need to rely heavily on analytical intelligence, which would force me to figure out how to create some weapon and kill anything that attacked me, or devise some signaling system.  That is, my analytical intelligence would serve as a crutch to prop up my lack of natural intelligence.  Put me in a group with someone who has high natural intelligence and we’d likely survive by playing off our combined strengths.

The point is, intelligence by itself is useful but it can be trumped by both the environment in which you operate and other forces I’m about to explain – namely, knowledge, wisdom and discernment. Nevertheless, you should know your own strengths and deficiencies.  If the primary role of education is to prepare students to become productive members of society, the school system in the United States focuses far too much on analytical intelligence.  Certain occupations, such as counseling or human resources requires high inter-personal intelligence and emotional intelligence.  If that is you, don’t be too concerned about your inability to do trigonometry.  We, as a society, tell some people they are failures when they are simply being tested on the wrong metrics.

Knowledge

Knowledge is pure, raw data and understanding of how something works.  To give you an example, even though my analytical and spacial intelligence is really high, I have no idea how to change my own oil because I have no knowledge of the inner workings of a car.  If confronted with the problem, I could likely solve it but I would be left in the dust by someone with a far lower intelligence level and more complete knowledge.

[mainbodyad]Knowledge is gained through study or experience. In some areas, such as statistics or facts, those with high analytical intelligence have an easier time acquiring it (they read something once, understand it and add it to their database of information to draw upon in the future.)  In others, such as how to perform a trick play in basketball or a specific dance move in ballet, those with high body-kinesthetic intelligence will be able to pick it up and reproduce the required action with much less effort than their peers.

In my own case, I read tens of thousands of pages of information each year, including books, magazines, newspapers, court rulings, annual reports, regulatory filings, trade journals, etc.  I am a learning machine.  I do it because I know that someday, that knowledge will be useful to my goal in life.  Otherwise, why would I know random things such as the freight rates for shipping a train car of coal from the West Coast to Kansas City ($5,000 to $8,000 before negotiated discounts via Union Pacific), the fact that hotel room rental rates in first-world countries before discounts are generally equal to 1% of the cost to construct the room, and average returns on capital for a wide range of industries?

Whatever you ultimate goals are in life, acquire as much knowledge as possible because knowledge can trump intelligence in many, though not all, cases.  If you run a steel mill and you can calculate your cost per tonnage more accurately than a competitor, it doesn’t matter how smart he or she is, you have factual data that can lead to better, more optimized decisions.

Wisdom

Athena Wisdom

Wisdom has long been recognized as a distinct, and unique, attribute that is rare among men. It has been personified and deified throughout all recorded history among most successful civilizations.  Image from Wikimedia Commons.

Wisdom “is a deep understanding and realizing of people, things, events or situations, resulting in the ability to choose or act to consistently produce the optimum results with a minimum of time and energy. Wisdom is the ability to optimally (effectively and efficiently) apply perceptions and knowledge and so produce the desired results.”

As philosophy defines it, wisdom is “making the best use of knowledge”.  If everyone had equal knowledge, the wisest person is the one who applied it in a way that got him what he wanted without a lot of work or effort.  Put another way, wisdom is applying knowledge in the most optimal way to require the least amount of effort or expenditure on your part to achieve your desired goal.

Wisdom is elusive.  It is uncommon.  Wisdom can trump intelligence and knowledge, though it is often heavily dependent upon the latter.  Wisdom is Rose Blumkin, who couldn’t read or write English, building a $100+ million fortune in Nebraska by taking her knowledge of the furniture business and applying that knowledge is unique ways that her competitors couldn’t imagine.  Wisdom is when she knew she would sometimes make more money by selling certain products at a loss to young married couples, who would then return to her for future purchases for the rest of their lives.

Wisdom can be substantially augmented by a rational framework.  The system proposed by Charlie Munger involving hanging your ideas on a latticework of mental models pulled from the great disciplines in the hard and soft sciences has fundamentally altered the way I approach life and resulted in far greater output for equal effort.

Discernment

Discernment is “the ability to judge well”.  The word has taken on an inherent religious context over the past few centuries due to its use in scripture.

Discernment is the still small voice inside that tells you when a course of action, which may appear wise, isn’t quite right or that it would be damaging to your morality.  Discernment can be summed up as knowing how to act in order to “avoid evil, do good”, as most sources put it.

By its very nature, discernment is tied inextricably to the moral underpinnings of a society.  Consider that it is patently unacceptable in Christianity, Judaism and Islam to accept usury on lent money.  Yet, virtually no one in the United States or the civilized world has any conviction whatsoever about seeing interest income deposited into their checking account at the bank.

Temperament

Temperament is the master that drives the other four forces in life if left unchecked.  Temperament is King, as it has the power to accelerate or demolish all efforts.

What, exactly, is temperament?  The best definition is “the natural, default, innate bias toward action and thought” a person has.  You know this already.  Think of the people in your life.  You know folks who have a natural state leaning toward happiness or depression, activist or victim, active or passive, pleasant or mean, selfish or generous, etc.  You often hear family members say, “She’s always been that way …”

There is a reason that so many of the people who are successful in certain fields are alike.  The top scientists often have a lot of personality traits that are similar, as do those who rank on the Forbes 400.  That is because certain disciplines call for certain temperaments to be successful.  Scientists with a bookish, insular, cerebral temperament are more likely to be successful because they would rather be thinking about chemistry and physics than tripping on acid at a rave party.

It doesn’t matter how intelligent you are, how much knowledge you have, how deep your wisdom, or how powerful your discernment, if you have a natural temperament that inclines you to get your kicks by going out and getting drunk on the weekend, smoking yourself into an early grave, engaging in rampant promiscuity, lying, cheating, stealing, or taking unnecessary risks, it is only a matter of time before you fail or die.  Much of the success of the world’s religions can be accounted for in the fact that they served as a mechanism for society to control those with ill-leaning temperaments.

It may be unfair, but there is a great deal of science that indicates temperament is the result of genetic brain chemistry.  The Church, misguided, for centuries called these “spirits” … as in, “He has a spirit of gambling.”  It turns out it was just a byproduct of selective reproduction that calls for a wide range of variable outcomes to propagate the species.

More specifically, scientists now know that temperament is heavily tied to the production of dopamine in the brain.  People like me, who are perfectly content staying home and making a meal with friends and family on a Sunday afternoon have high levels of internal “happiness” drugs floating around in our heads.  When I see a beautiful pair of cufflinks, my heart rate accelerates, my voice rises, and my body temperature increases.  I get an adrenaline rush and an emotional high.

Someone who engages in skydiving or BASE jumping, in contrast, is far more likely to have low absorption or production of dopamine.  To get the same joy I experience by reading a good book, they literally need to hurl themselves off a building.  It’s not that they are stupid or unstable, their temperament is dictated by their brain chemistry.  It may be unfair, but the reality is it takes far more effort for them to get a natural rush of excitement than it does me.  We, as humans, need this diversity on a macro scale because it makes our survival odds higher.

Temperament is not destiny, though.  It means that the difficulty with which you have to struggle against your temperament is likely beyond your control, not your actual success.  Just like being tall or short, white or black, gay or straight, male or female, temperament is decided at birth and/or through some combination of external interaction with genetics.  Some people are naturally inclined toward being hateful and disagreeable.  If they want to be successful in life, they will have to overcome that, even though for other people, it is effortless.  Or, even better, they could become a political commentator and profit off their natural disposition.

Instead of whining about how unfair temperament is, find a way to overcome your own temperamental shortcomings and play to your strength.  My brother, who is still deciding on his ultimate career, was wise enough to know that his temperament is sometimes inclined toward moodiness, so he doesn’t want to become a doctor that has to deal with patients and “their stupid questions”.  If he goes into medicine, he would rather be a surgeon or something comparable where they have a highly skilled task to perform and then go on to the next item.