Three Types of Intelligence

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The opposite of that is bad news. Usually happens very fast. It happens overnight. Things out of the blue that you can't avoid and terrorist attacks and car accidents. But good news tends to be slow. Like most rules, there are exceptions to this. Sometimes the exception proves the rule. And I think there's a version of that happening right now with AI, where in literally the last 90 days, the improvements in the AI models are visible and you can't ignore them. Like how good chat GPT or Claude is today versus how good it was in April is materially different. And it doesn't show any sign of slowing down. I had one of these experiences in the past couple days where I started using one of the new AI agents where it's not a chatbot that gives you information. It can actually complete tasks for you. It can go do things for you. And it was one of those experiences that I've only had a very small number of times in my life where within 10 seconds of using the product, you were like, there is no way that this does not change the world. There's no way that this is not going to control your life in a short period of time. In a positive way. We have technology that can just do stuff for us now that didn't exist 90 days ago. And it's astounding, like sometimes you have these moments where you just have to sit back and be like, I can't believe how fast the world is changing and we're in one of those right now. Very exciting. I'm not an AI expert, so that's my only take on this. Of course, when something is changing that fast and it's that powerful, there are downsides. The downsides to AI that everyone's been talking about in the last couple of weeks, in particular, is the idea that it's eventually going to end humanity, that it's going to take over the world and shut down the power grid and cause a bio weapon, whatever it might be. That's what everyone's talking about. A much more subtle and less exciting and therefore less in the headlines risk is kind of what the slow erosion of what AI can do to people's cognitive abilities. That if and once people realize, particularly young people who have not developed a lot of those cognitive abilities yet realize that critical thinking is not necessary to have a good fulfilling life and a successful life, you start shutting it down. And all of the learning that most of us went through early on in the pre-AI days, like a year ago, tends not to take place anymore, at least as much as it didn't. If you talk to college professors and high school teachers, they will tell you how quickly and how profound AI is changing, how kids learn, including one way to summarize it is, they're not learning, like they used to be. There's a really good interview in the last week with Jensen Wong, the CEO of NVIDIA, and the largest companies in the world now that make AI chips. And he's talking about this idea that because of AI, students are not learning things like math like they used to because you and I used to go home with our homework on paper and do long division by hand. And now if you ask students to do that, they're like, why the bot can do it all for me? Why would I need to learn this? And so here's part of the interview. I'm going to read Jensen's quote. He says, try to get a kid to do long division right now. The multiplication table is starting to be forgotten. Having square roots, oh my goodness, basic math is being forgotten. And then here's what he says next. He says, quote, does it matter? And the New York Times says, well, that's my question, doesn't matter. And Jensen Wong says, I don't think it does. I don't think it does. The New York Times says, but there must be another set of skills that matter. And Jensen says, oh yes, yes, yes, but maybe not those. We're going to discover new ones just maybe not those. And so he's basically saying, like, look, yes, it's true. He's don't learn math anymore. They can't do long division anymore. And his response is like, so what? Now, of course, you have to understand, he's a CEO of what is effectively the largest AI company, chip company for AI. He obviously has a set of incentives. And also, if society is falling apart because of what he and others have done, of course, he wants to avoid that. I'm not saying he's completely unbiased in that assessment. But I think there probably is a little bit of validity in that idea of we are losing skills that we used to have. And to some degree, I'm not saying this is a black and white issue, but to some degree, if your response is so what, did that kind of make sense? Let me give you an example in finance, one industry that doesn't apply to everything. But 100 years ago, the investing industry did not have either the data or the formulas to really understand how to value a stock or value a bond. And so 100 years ago, if you wanted to be successful in the investing industry, what you needed were soft skills, sales skills, how to be persuasive, how to get people excited. Your analytical ability did not matter because there wasn't even any data to analyze anyways. You just need to be a good salesman. And this is why the 1920s was by and large, the era of stock frauds and scams. There were a lot of charlatans back then. And that was important. You were about the 1950s when economics and finance became very formalized academically. If you wanted to get ahead in the industry, what you needed to be was a math nerd. You needed to know the formulas and how to crunch data. And if you could do that, the sky was a limit in your career. And yes, there were salesmen and whatnot, but it was truly like the skill that really mattered more than anything was math. This predates AI. This has been true for probably 20 years now that the math side of the equation in investing has mattered much less and less because now everybody has the data and everybody has a formula. And your ability to get ahead and discover something interesting because your good at math has been severely diminished over time. And AI just makes that go supernova now. And so we are back, I think, in an era in finance where what really matters, if you want to be a good financial advisor, is not your ability to make an Excel model or to be good at math, it's your ability to make clients to be able to talk to them and communicate with them and help them understand their own emotions, their own dealing with volatility, their own goals, it's a much softer skill. And so there's been this pendulum between what mattered in the world to get you ahead. And it went from soft skills to hard math and I think it's now back to soft skills. And maybe finance is the most extreme example of that coding is probably another where like 10 years ago if you wanted to get ahead in computer science learned the code. That was what everyone said, forget 10 years ago, two years ago. And now with AI, that is pretty much gone. And now I think if you want to get ahead in technology at a tech company, what you really need to do is the softer skills of how to communicate, how to persuade, how to organize people, that's what's still valuable, but the technical skill has lost some relevancy. And so I want to say it again, this is not a black and white thing, is math important absolutely, it doesn't even need to be said, of course. But some skills are at least cyclical over time if not lose a lot of their relevancy over time. And maybe this was true if you go back 150 or 200 years ago before the era of public schooling, what did it really matter if you could do the multiplication tables in your head, if almost certainly 99% of you were going to end up as farmers. What actually mattered was that you knew how to work farm equipment and knew how to plow fields when that was what was most relevant to you. And so let me sum it up like this, I was going through my notes because I remember reading about something about this years ago, and it was a book called The Element by Ken Robinson and Lou Arnaca. And I want to read you this quote, he says, there are three types of intelligence. There's analytical intelligence, which is the ability to solve problems using academic skills and to complete conventional IQ tests. Then there is creative intelligence, which is the ability to deal with novel situations and to come up with original solutions. And the third is practical intelligence, which is the ability to deal with problems and challenges in everyday life. That perfect way to sum that up. And I think a lot of what has mattered for the last 100 years and is almost exclusively what is taught in school is the first version analytical intelligence. Study the periodic table, learn the multiplication tables, learn algebra and calculus, that kind of things. And that was very important. And it was easy to teach because you could come up with a formula that you could test the kids on. So that's what people taught because it was easier to teach. And I think it's just becoming more and more clear that in the AI world that is exploding as we speak, that kind of intelligence loses relevancy, creative intelligence, and practical intelligence gains relevancy. Now, the education system, forget not caught up with this is still completely blind to this. And teaching the kind of softer skills that are going to be more in demand, Once AI can remove a lot of the more analytical skills from your life, I think is not being addressed, at least as quickly as it can be. I've always been of the case, but I think it is more and more important than ever that the soft skills that were in many ways diminished for the last couple of decades, how to communicate, how to be a good storyteller, how to persuade people, how to organize people, how to get people to pay attention to you, being creative and using that part of your brain. The things that I think people are still going to value in a world where AI can take all of the analytical challenges off your plate is more important than ever. Now, what's my big takeaway from that? I'm not really sure. I have two kids in elementary school. I want them to learn their multiplication tables. The stuff is not, if I'm not saying it's not relevant at all anymore. Of course, there's a certain level of practical intelligence and creative intelligence that requires that you understand some of the mathematical concepts that have always been taught, of course, but it's clear and becoming more clear, I think, by the day, that the skills that were very necessary even 10 years ago are becoming less necessary. And there's a new set of skills, some of which we don't even understand yet, that are going to become increasingly necessary. All right, before I get into some of your questions, please keep sending me your questions. I love them, they're great. [email protected] is where you can send those, [email protected]. Send in as many as you can, I love it, thank you. I want to address what is a very common question that you've sent in in the last couple of weeks which is asking if I will comment on the midterm elections, even if I will comment relevant, like how they relate to investing in money. My response is thank you, but absolutely not. And I'll tell you two reasons why. One is, of course, I have my political beliefs and opinions and thoughts. No matter what I say, no matter how neutral I think it would be, I would anger half of you. And I have no interest in doing that. I'm not, that's not the kind of content that I would like to produce. Even if I'm not going to pretend that I'm apolitical and don't have thoughts, I think a lot of media has been poisoned in the last couple of decades when the person doing the content takes the view that the more engagement, which is often the more anger that you can get the audience to have the better. And I have no interest in that. But more important, less self-centered than that, is the idea that anyone ever incorporating politics into their investing decision-making or any kind of financial decision that they make with so few examples is going to end up with a poor outcome. There is almost nothing more toxic to your critical thinking and ability to calmly think about what's going on in the world than becoming political. And on one hand, politics is centered in the economy. You can't just ignore politics. The federal government is a huge portion of all federal spending and the rules and regulations and wars and oil prices that you can't ignore all of it. But it is almost impossible to think about politics without being partisan. And partisan is the toxicity that just is going to pollute your decision-making with money. I have never known anyone who has been partisan about their decision-making who has not regretted it or at least has not generated a poor outcome with it in hindsight. And a lot of this is just because the clean, simple, and persuasive narratives of politics are almost never how the very complicated economic machine plays out. I'll give you a couple examples of this. It was so common after George W. Bush won the presidency in 2000 that the narrative, the very simple narrative that was so persuasive was he's going to cut taxes. That's good for consumer spending by airline stocks. That was a big narrative. And then you have 9/11 and all the airlines go bankrupt. It was very common when Barack Obama won in 2008. He's going to promote a lot of green energy, go buy the solar companies. That made a lot of sense. It was not a crazy thing to say. And there were a few industries that were worse to invest in over the subsequent years than solar companies, a lot of them went out of business. And almost any presidency going back through time, you can create that. The narrative of this president or this Congress is going to be good or bad for X. And that actually coming true is very, very low. The economy is way more complex than the simple narratives of politics, and that's why I never talk about it. All right, getting into some of your other questions. First question, this one's from Jonathan. He says, do you think more people should take the cost of living into account as an important determinant of happiness and planning for a secure future? Great question, Jonathan, because a lot of people talk about the cost of housing and the cost of living right now. It's a huge issue on almost everyone's mind. One thing I would tend to believe about cost of living throughout the country, different cities and different costs is that the market tends to be very efficient. And when you look at the cities that have an extremely high cost of living, New York, San Francisco, Los Angeles, Seattle, those kind of cities, it tends to be fairly efficient. The reason those cities are so expensive to live in is because A, there's a lot of opportunity and there's a lot of opportunity to make a lot of money. And the reason it costs so much to live there is because there's a lot of people who can afford to live there making that much money. And so no one should pretend that an apartment in New York is comparable to an apartment in the middle of Iowa. Because the opportunities in those cities are so different. And so when people compare different costs of living, I have a lot of this with my friends in the Midwest who will say like, gosh, it's so cheap to live in the Midwest. And I try to respectfully be like, yeah, but there's a reason. There's a reason San Francisco is more expensive than the middle of Iowa. I think what can get lost in that is, too, is that this is not just a financial problem to tackle just comparing the cost of living. I think one of the things that has been diminished in society in the last couple of decades is the joy and dignity of living a very simple life. And a lot of the problems with people complaining about the cost of living, complaining is the wrong word, it is an issue. Is the desire for people to live in the most desirable areas. And so yes, if you are a waiter and you wanna live in Brooklyn or downtown Los Angeles, it's gonna be very, very difficult. And I think in previous areas, to the extent that people were more satisfied with their living situation, part of the reason was people were more willing to live in the middle of Iowa and have a simple existence in that. And a lot of this is just based off of what your career would be, too. If you are an aspiring actress, it's gonna be hard to live in the middle of Iowa. You wanna be in Los Angeles. And if you are a waitress, it's gonna be really hard to live in Los Angeles. It's not a very cheap place to live. And so a lot of that is just based off of the kind of life that you wanna live. This is probably too simple, formula to put forth. I think people who live in cities are much more stimulated. They just have a lot going on and it's loud. And there's so much opportunities or so many different people to meet and different things to see. And for probably half the population, that's the right place to be. They have to be stimulated, they need that. And people who live in the country, so to speak, are probably happier. It's a simple life, fewer stresses. And there's no right way of like, well, which one of those should you want? People are very different in that. They're different at the different points of their life, too. I would have loved to live in New York when I was 22. And there's so much going on in people to meet. Now that I'm not 22 and have kids, like I wanna be in the quiet suburbs. That's where I wanna be, even if I would have been miserable when I was here. If there's one thing I would say about the cost of living that I think I've seen overlooked quite a bit is for people planning out their retirement and not taking into account how important good quality medical care near your house is going to be. And when you're planning your retirement, maybe in your 50s or early 60s, it's less important to you and you're not thinking about that. And then when you're 78 or 85 and the medical care is gonna be the center of your life, in many cases, then living in an area that had better healthcare, maybe something that is more valuable to you than anything. All right, next question says, how do you tell when someone giving financial advice online is being genuinely honest to the best of their knowledge versus subtly selling you a narrative, whether it's a product or an ideology or it's just their own ego? The tricky part is that both can look identical from the outside, confident tone, good storytelling, seemingly sound logic, and it's hardest to judge with strangers online where you have no track record or relationship to lean on. Wonderful question, I love it. One of the ways I think about this is asking, what is the difference between a prediction and a prophecy? And the simple explanation would be a prophecy purports to know something that cannot be known. That's what a prophecy is. If someone comes to you and tells you that they can predict something that is impossible to predict, that's the charlatan, that's not a prediction. And so I'll give you an example of this. If I were to say historically, there have been an on average two recessions per decade, and I expect that to be the case going forward. That's my expectation. That's a prediction. I'm making, it's not anything crazy. I'm just using like, this is what's happened in the past. It will probably be something like that going forward. That's a prediction. If I were to say the stock market is going to decline, starting December 1st and it's going to decline 18%. I cannot know, that is an unknowable thing. Nobody can know that. And that is where charlatanism comes in. And so understanding what can and cannot be predicted in finance or politics, whatever it might be. And having a filter in your brain that the people who are telling me things that are unknowable are often very persuasive. And you want to hear it because it can tell you things that you want to hear. And if people tell you what you want to hear, they can be wrong indefinitely without penalty, because they're telling you what you want to hear, that's really important. The other thing that I would talk about here when seeking advice is that you really want to go out your way to hear the person giving you advice. advice, tell you what they cannot do and what they are incapable of doing. If they are always promising you the moon and they are not expressing any of their limitations, that's the ultimate red flag, whether that is a doctor or a financial advisor or a talking head on TV. If they are not spending as much time telling you what they cannot do and they're only telling you what they're good at, that is almost always a sales relationship there. The other thing that's much more nuanced is that very advice has to fit your own story and your own goals and the own game that you're playing. And so if I were to turn on CNBC right now, which I don't, but if I did, and there was a talking head on there in a nice lovely suit and he said, I think you should short Apple stock before earnings next month. That might be very relevant to a day trader of whom I am not. And so I know that's not relevant to me. And so I can pay any attention to that because it's not relevant to the game that I am playing. I will quote the great comedian and I think philosopher George Carlin and you'll have to forgive me for using a little bit of language here, but I think it's a very well put line that he said. You have to understand that some people are intelligent, but full of shit. All right, next question. This one's from Catalane who says, if you checked your lottery ticket tonight and realized that you had won, what is the very first thing that you would do? I'll tell you two things that I would do if I won the lottery tonight, Catalane. Number one is I would not tell anyone other than maybe my immediate family, of course. The big idea here, throw the lottery out of the situation because no one's going to win that tonight. It's very easy to underestimate that when you are in a better financial situation to someone else and you make it known to other people that you are doing better than them, that they are not impressed with you and they do not admire you. They envy you, which means they hate you. And the idea that it was so common that we want to flex our situation and with our nice house and our nice cars and do that. And there's a great line from Will Smith's biography where he says, nobody cares about anything other than how you make them feel about themselves. And if I were particularly for something like the lottery where it's no skill, it's not because I worked hard for 20 years and added a lot of value to society. It's just this utter windfall that if I were to use that to flex on other people about like, look at this big house that I bought, they would look at you with a sense of disdain. And that does you know favors whatsoever. A lot of the debate around wealth inequality is not necessarily around people who have more money than others. That has always and will always be a thing. It's people who look at other people who have more money than them and think whether they're right or wrong. You didn't earn that. You don't deserve that. If you're not working as hard or adding as much value as I am, but you have more money. And so something like the lottery would be the ultimate, do not tell anyone, it will do you no good whatsoever. But I think that's true for a lot of ways that people build wealth over time. The other thing I would do is I would keep my expectations in check. I would not pretend that that kind of windfall is necessarily going to make me happier. It might make me marginally more comfortable around the edges, but it's also going to bring in a lot of problems in my own life, whether that's my kids or my friends. And I wouldn't pretend that if I have that windfall, I am going to become more fulfilled. I am going to become healthier that my marriage and friendships would necessarily be better. Very easy to fool yourself into thinking that even if most of the evidence we have is that it will not. My recommendation for you today, last week I told you about Bill Bryson's book The Body. Bill Bryson is one of my ultimate examples of when you read one of his books, you say, well, I have to go order all of them. He is just such a ridiculously good talented writer and storyteller that I've read all of Bill Bryson's book except this one, which is called The Life and Times of the Thunderbolt Kid, which is a memoir about growing up in the 1950s. He makes a quote in one of the first pages of the book, paraphrasing here, so it's not exactly, he says, "Nobody in human history has ever been happier than Americans were in the 1950s," and look, probably not that black and white, a lot of people were unhappy back then, but I think there is some truth to that. Part of which is the two decades preceding the war were the Great Depression and World War II, and then you had this period of even if it was merely stable, felt amazing. The other part that I've written about, talked about this before, is that it was an era where it was very easy for people to keep their expectations in check, and he talks about that in this book, that in the 1950s, the people who you hung out with in your town were by and large very much just like you, economically, socially, culturally. It was an era where it was harder than it is today to look around and be envious of other people who were doing much better than you, because by and large they didn't exist. I'm not done with the book, but he is such a ridiculously good writer, and I was reading on the plane the other day, and I was embarrassed because I kept laughing out loud, making you fool myself on the flight, but check it out, it's a great book. That's all I got. See you again next week.