The Dangers of Quick Thinking

Of course not everyone shares Braden's sense of humility, and hence we get the spectacle of successful traders and fund managers explaining their strategies. Somehow, following their advice doesn't always seem to work out as well for the rest of us.

In the Soros story provided by Gladwell, for example, the legendary hedge fund manager's son Robert says that his dad always had an explanation for all his trades. But in truth, the genesis of many trades was a severe backache. "The reason he changes his position on the market or whatever is because his back starts killing him," the younger Soros says. "He literally goes into a spasm, and it's this early warning sign."

It's an experience I can relate to after having interviewed dozens and dozens of fund managers over the years. Last spring, I was interviewing former (FMAGX Quote)Magellan fund manager Peter Lynch at his modest office just down the street from Fidelity's equity operations. Lynch still invests for himself and coaches new Fido analysts and managers.

He explained some of his research-oriented investment strategies that involved company-specific, industry and macro factors. And yet one anecdote seemed far more revealing.

Some years ago, when he still ran Magellan, Lynch was visiting with the management of Sears (S Quote) and was told that carpets were selling quite well. Did he go back to his office and do a four-day work-up on the carpet industry? Nope, he excused himself to go to the bathroom, called Fidelity's trading desk and had them buy positions in the retailer's seven biggest carpet suppliers. "Before sunset, I was in carpets," he said.

Lynch may know that acting on instinct alone, even with great long-term results, isn't enough in the investment business, where customers -- especially big pension funds and endowments -- want to hear some intellectual backing.