Emotional intelligence can be defined as the ability to recognize emotions that arise from within to be able to handle them for better decision making. Also, the ability to identify others’ people emotions to be able to handle complex situations in the best possible way.
- Origin story
- Two brilliant guys
- What did they have in common?
- The story unraveled
- Does a Nobel Prize keep you away from troubles?
- Who is Daniel Goleman?
- What is Emotional Intelligence (EI)?
- Correlation between IQ and career success
- Why do we feel emotions such as anger and fear?
- Our brain is an evolutionary machine
- What triggers emotions?
- Stop victimizing yourself: it is counterproductive!
- Three advises from Daniel Goleman
- Start practicing Emotional Intelligence
- The biases you need to be aware of to be more conscious
- Learn emotional intelligence from the most successful modern investor
One question that always puzzled me is: “How to determine whether a person is intelligent?”
I have to confess that I did not know the answer to that question, until recently.
But that inquiry brings us to a deeper one: “how can we measure intelligence?”
The most common metric (IQ) has been a cause of frustration and discomfort for many who found out not to be as smart as they thought. But how reliable is IQ in measuring overall intelligence?
Is it fair to say that a person with a low IQ would get condemned to a useless life?
It leads us to the source of all misunderstandings: Can intelligence and therefore success get relegated to a standardized test such as the IQ?
Two brilliant guys
Let me tell you the story of two very “smart” guys: Jeffrey and Kenneth.
Jeffrey was born in 1953, in Pittsburg, Pennsylvania. Second, of four kids, since childhood hour he showed to be smarter than other youngsters.
It became evident when Jeffrey got was finally admitted to the Southern Methodist University in Dallas where he received a full scholarship and eventually studied business.
After graduation and working for a while with a Houston bank, Jeffrey was sent to Harvard Business School graduating in the top 5% of his class (Bio).
Kenneth was born in 1942, in Tyrone, a small town in Missouri, as the only child. As the child, Kenneth showed to be very smart as well.
He worked his tail off by delivering newspapers and mowing lawns. Subsequently, he earned a degree in economics from the University of Missouri and not satisfied yet; he received a Ph.D. in economics from the University of Houston in 1970 (Bio).
What did they have in common?
They were both brilliant, successful and wanted to make a lot of money. Their paths crossed when Kenneth hired Jeffrey as the consultant (while working at Mckinsey and Co).
Kenneth’s company operated in the utility industry, and it was one of the biggest and most successful corporations in the US.
Kenneth was impressed by Jeffrey’s performance, and eventually, he hired him as CEO of the Capital & Trade Resources of the organization (the primary division of the company).
Jeffrey’s career was so successful that (by 1997) he was nominated CEO of the whole business. Only Kenneth retained a more influential role within the organization.
It would have been great if the story ended there, but let’s see what happened next!
The story unraveled
Kenneth and Jeffrey were two brilliant individuals, with MBAs and PhDs, and very high IQs, therefore, destined to succeed. Jeffrey and Kenneth were not the only smart guys in the company.
Ever since Jeffrey became CEO, top graduates were hired to run the business’ operations. The company became so successful that Kenneth and Jeffrey were everywhere: from business magazines to finance newspapers.
Their reputation in Wall Street snowballed. How did the company grow so fast?
Jeffrey had the brilliant idea to use the market to market accounting. It means that the firm was valuing its assets at market value instead of historical cost.
For example, when the company invested in new plants, they could already show its future estimated profits on the balance sheet.
And if the acquired plant did not produce any benefit in the future, the company created ad hoc off-balance sheet financial vehicles to hide the losses.
Therefore the company balance-sheet was always kept “clean” from losses. Those complex operations allowed the company to maintain a high rating, while not risking a dime. Were all those activities legal?
As it turned out, they were not. Indeed, when the operations became too complicated, the company could not hide them anymore, and the financial situation became unbearable.
When voices spread that the firm had billions lost in those operations, it became one of the greatest scandals in American history. The company was Enron, and the two protagonists of the story were: Jeff Skilling and Kenneth Lay.
They were “the smartest guys in the room.” In 2006 both Jeff and Kenneth were convicted of fraud and became the most obvious case of how smart people can do stupid things.
Does a Nobel Prize keep you away from troubles?
Let me tell you the story of LTCM (Long-term Capital Management), a hedge fund which eventually collapsed by taking too much risk. LTCM was founded by Robert C. Merton in 1993 and had on its board, Myron S. Scholes.
Who are they? Both Merton and Scholes were Nobel Prizes, awarded in 1997, just one year before LTCM collapsed.
You might think “why is this relevant to our story?” Well, the LTCM firm got founded on the idea that a formula (they won the Nobel Prize thanks to this method), could succeed in all financial circumstances.
That formula worked for a couple of years, until 1997. During that year the firm lost a staggering $4.4bln and had to be bailed out by other institutions (When Genius Failed – The Rise and Fall of Long-Term Capital Management)
Is it possible that two Nobel Prizes, among the smartest persons on the planet, were not able to foresee the risk involved in their operations? Maybe they did understand the risk rationally but not emotionally.
But if that is the case can we still define those people intelligent? Of course, they are among the people with the highest IQ in the world. What is the other aspect of intelligence that goes beyond IQ? Emotions. Indeed, emotions can hijack the intelligence of an individual.
Daniel Goleman calls it “EI” or “Emotional Intelligence.” Although the term “Emotional Intelligence” got used for the first time by psychologists John Mayer and Peter Salovey, Goleman was the one who formulated a systematic approach to EI.
Who is Daniel Goleman?
Daniel Goleman is an international psychologist who eventually became famous through the book “Emotional Intelligence.” He was born in Stockton, California, in 1946.
After getting a scholarship to Harvard, he studied clinical psychology. After that, Goleman continued his education in India and Sri-Lanka where he started to investigate the implications of meditation practices on stress reduction.
He then joined the New York Times in 1984, but soon he realized that the topic of emotional intelligence required his attention until the book on the subject came about and sold more than 5 million copies worldwide.
What is Emotional Intelligence (EI)?
How many times do you find yourself doing something you promised it wouldn’t happen again?
Saying something in public, you were not supposed to say, falling still into an old bad habit that you were trying to abandon. In all those cases the reason we fall back into the trap is that we lack Emotional Intelligence, or “the capacity to assert self-control, persistence and most of all to motivate oneself.”
Why is it so difficult to change our bad habits or behaviors? Try to stop and think for a few seconds how many times you burst into anger and treated people around you poorly.
Then, a just half-hour later you regret what you did. Why don’t we stop such behaviors when they are happening?
Well, because we lack Emotional Intelligence, or the ability to understand what we are feeling at a particular moment.
In other words, if you are having a dispute with your family and suddenly you are about to “lose your mind” how you can avoid that?
While you talk or listen, try to analyze your internal mental state, assess your body sensations and if you detect some feelings of discomfort get out of the dispute for the half-hour.
This time will give you the chance to make your mind and let the cortisol (a hormone released during stressful situations) to be absorbed by the organism; therefore making you more relaxed.
Of course, this is just one situation you may face in life, but the point is that EI requires a lot of mindfulness and the ability to see oneself from the outside.
It is almost like you are inside your head while you react to something and on the other hand, you are someone else, looking at yourself from the outside! Does it sound crazy?
I know it seems overwhelming and It is not easy since a lot of practice is required. Thereby the next natural question is: why would I waste my time doing so when I could be studying technical staff? Let me answer.
Correlation between IQ and career success
Of course, you can spend your whole life studying hard and acquiring technical skills that will make you more successful when it comes to your career advancement.
But will they? As shown in many types of research IQ scores have a weak correlation with professional success. Instead, cognitive ability (EI) resulted from a much more reliable predictor of job performance (IQ correlation with success). In few words, the IQ without the EI does not get you anywhere.
And the reason is pretty simple: do you remember the stories at the beginning of the article? Enron and LTCM are just extreme examples of lack of Emotional Intelligence.
If you compare two individuals, one with a higher IQ and lower EI and another with a more moderate IQ but high EI should not surprise you if the second person will become more successful in life.
Why? Intelligence in standard terms (IQ) gets completely wiped out by emotions. Unless EI gets developed.
Why do we feel emotions such as anger and fear?
Evolutionary speaking those emotions make perfect sense. Imagine a homo sapiens two hundred thousand years ago, in a jungle. The Sapiens is about to be attacked by an old tiger weighing around 150kgs.
Fear strikes, his body freezes (to allow hiding) so that the body will be in a state of max alert and he gets ready for the fight or flight response.
Think of all the times you heard a noise in the middle of the night; something fell, your heart rate increased, you froze. On the other hand, your brain started to scan all the possible scenarios: is it a bird? Is it a thief?
In other words, emotions are a defensive mechanism used by our organism to face dangerous situations.
Indeed, for example, when anger strikes your heart rate increases, the blood is pumped faster and toward areas of the body such as our hands. In turn, this gives you the chance to defend yourself by allowing the energies to flow where needed the most.
If this makes sense when it comes to situations of real danger, it can become counterproductive when it comes to social conditions.
Think of an argument with a co-worker where your anger mounts to the point that you almost physically attack him/her. What just happened to you? Why could you not control that reaction?
Another example: last time you spoke in public your hands sweated, and you could barely open your mouth or move your tongue to articulate a word. How to control that?
To answer, we have to dig deeper and ask: Why do emotions are triggered faster than thoughts? But to respond to this question, we must understand how our brain works.
Our brain is an evolutionary machine
In our head, we have an evolutionary device. What does it mean? Think of when you bought an I-phone for the first time. In the package, you found the phone ready to be used.
The software got installed, and all I-phones come with the same configuration. On the other hand, to make it work properly, you need to install apps.
The apps make your I-phone more functional. Therefore, what will differentiate one I-phone to the next are the apps installed on it.
For example, one I-phone will have ten apps, another twenty and of course, the one with more apps has higher functionality.
I know it may sound very simplistic, but the point is that when humans come to life, they have all the same “package”: our brain (software).
Then later in life, we start to learn many things such as how to talk, walk and so on (apps).
Once reached the mature stage we can learn several languages or play several musical instruments. Those “upgrades” are similar to an I-phone with more apps on it.
Keep in mind though that to preserve the functioning of your I-Phone you must update the software first otherwise, all the apps installed will be worthless.
The same applies to our brain. You can learn all the skills you want, but to be very useful you must learn how to control your emotions first (upgrade your software).
Then it will make more sense to go on and learn ten languages or to play ten musical instruments (apps).
The next thing to figure out is how our brain evolved. It turns out that our mind grew gradually; in other words, it developed one layer at the time.
The new brain has three primary layers or systems: reptilian, limbic and neocortex. The reptilian brain is the oldest. Therefore, it evolved before the other layers.
Indeed, that part of the brain controls vital functions such as breathing, body temperature, heart rate, and balance. The limbic system evolved subsequently, and it is the part related to emotions and memory.
The neocortex, the last to develop played a key role in thoughts, consciousness processes, language and so on.
Keep in mind this is only an (over)simplification of our brain, which is way more complicated than that.
What triggers emotions?
The limbic system is the part that plays a vital role when it comes to emotions. And evolutionary speaking emotions are essential for survival.
Also, emotions are crucial because they allow us to form memory. In the limbic system, there are two main parts: the amygdala and the hippocampus.
Those parts are linked, and the activation of the amygdala becomes crucial to allow the hippocampus to form memories to be stored in our brain.
Also, the amygdala is like a “human alarm.”Indeed, it signals all the situations that may be “relevant” to the hippocampus, which in turn stores those memories for future purposes. The issue is that the amygdala continuously scans the surroundings.
Therefore, if it gets over-activated, it may become dysfunctional. Think of a paranoid person that sees danger anywhere. Well, this person’s amygdala is over-stimulated.
Think of your car’s alarm that is too sensitive and gets armed all the time someone passes a few feet away from the vehicle.
How to control emotions? One way to manage your feelings is to tame the amygdala. In other words to make sure you do not get hijacked by it. How to do so?
It comes very handily our neo-cortex area: in particular the left pre-frontal cortex. That is the part related to consciousness, thought, and language.
Many types of research showed that increased activity in this area of the brain inhibits the amygdala; therefore it keeps it under control.
Taming the amygdala is not that easy at first, and the reason stands in the fact that the signals that arrive from the outside world, such as sounds, vision and so on may be acknowledged first by the amygdala, then by other areas of the brain.
Stop victimizing yourself: it is counterproductive!
One way to develop Emotional Intelligence is to learn how to use productive self-talk. How many times you did something wrong, and you ended up saying “I always make the same mistakes” “I am a failure” or “It is always my fault.” If you do use such kind of self-talk is time to STOP.
It is the kind of self-talk that allows the amygdala to dominate within your brain, reinforcing itself from time to time until the other parts of the brain become numb.
One key to change self-talk is to modify the perception of things. Anyone knows that if you take two persons looking at a glass of water half empty and half full, the optimist will see the entire half and the pessimist the empty half.
In reality, none of them is right or wrong; their perception is different. To change your opinion of things, you must be aware and conscious throughout your day.
Think of how many times you get caught in thoughts entirely unrelated to the situations you are facing.
For example, you see an object, such as a pen that for some reason reminds you of a person that few days before mistreated you. You get swept by that thought that leads to another view and so on until you become so angry and nervous, although you were having a , day. That train of ideas must be stopped if you want to keep a positive mood throughout the day. But to do that you must be aware, or be able to “think about your thoughts and keep them on track.”
Indeed, the emotional brain, unfortunately, is indiscriminate; it creates links between memories that are not rational or controlled. If you let your emotional mind run undisturbed, this will bring most of the time to unpleasant emotions and feelings.
How to stop it? Use your consciousness and understand what is happening in the background. In other words ask yourself: is it rational what I am thinking? Is this thought useful to the situation I am facing now? Those questions will help to activate the prefrontal cortex while inhibiting the amygdala.
Three advises from Daniel Goleman
Daniel Goleman through his writings suggest us to be very careful about many aspects of our personalities such as self-awareness, personal decision-making, managing feeling, handling stress, empathy and so on. Also, he would remind us of three elements that are crucial:
Start to become aware of your thought processes. In any moment of your day, from the smallest errand to the critical meeting try to keep track of your thoughts.
For example, if your boss is mad at you and you start sensing a feeling of fear that kicks in start to tell yourself “I am sensing fear,” such an exercise can be beneficial to detach you from the actual situation and train your left prefrontal cortex to act. Do not let the amygdala dictate your life!
Once you become good at understanding your feelings start to work on your impulses. In other words, if there is any wrong habit that is making you a slave, try to become aware of it, and gradually develop “the capacity to resist that impulse to act” instinctively.
Temperament is not destiny
Keep in mind that you choose. Of course, your emotional troubles are coming from a long time ago, most probably when you were just a kid. On the other hand, that does not imply that your personality determines your destiny. Quite the opposite, choose the qualities you would like to have and start to implement them now! (see Warren Buffet on How to develop a character )
Start practicing Emotional Intelligence
If you are one of those people who think they cannot control their emotions, I hope you changed your mind. In Daniel Goleman’s book: “Emotional Intelligence” you will find useful information that will help you to reduce stress, to reduce impulses and to create more self-awareness.
It is your turn to dedicate some time of your day to nurture the intellectual side of your brain. The most important takeaway from this article is that “you can choose.” Don’t get me wrong, not all emotions are bad! It is amazing to experience positive emotions such as love, compassion, and joy.
On the other hand, if you let yourself get swept by negative emotions such as hatred, envy, and anger you are limiting your life.
In today’s world where social media are intended to make us look perfect and happy, people post beautiful pictures, funny moments, and exotic trips.
It seems almost like unhappiness does not exist. If you dig deeper, you see how things are. Repeat yourself this mantra “I am not alone. I am not different; I am like any other human being, I am facing the same problems other people are facing or that others are already faced”. Once you recite this mantra, your perspective will shift.
You will no longer see yourself as the “victim, ” and suddenly a new world will open to your eyes. Therefore, to be successful in life and business:
Stop personalizing, victimizing and blaming yourself or others. Take charge for your life now:
The biases you need to be aware of to be more conscious
Biases are built in perceptions about things that in many cases help us survive in many others might bring us toward making wrong decisions. Knowing what some of those biases are might be a great starting point.
Do you know that your intuitive machine works better when in a good mood? Daniel Kahneman in some of his experiments showed that people who were put in a good mood doubled their inherent ability. The opposite is true as well. Many mistakes made by speculators happen either when in an exuberant mood or a terrible mood.
The Illusion of linear Patterns
Ever since Greek Philosophers (Plato and Aristotle more than anyone) thought us about purpose. Everything in nature must have a goal and therefore be connected by a cause-effect relationship.cause-effect Relationship. Our tendency to look for patterns is in part built-in and partly inherited from ancient philosophy. We love order, it makes us feel safe, and it gives us a sense of self-confidence. The problem is that we go too far with our tendency to look for order. We see patterns where they are non-existent. The investor falls in the same cognitive bias often. In many circumstances, he attributes the rise or fall of stocks to the next market news.
When someone gives us a certain number (not necessarily related to the transaction) for some reason, we stick to that figure (or we don’t go too far from it). For example, if I were to ask you the age when a person died, and before the question, you were shown a small number (say 25) chances are you will say the person died at a young age. The investor falls into the same trap when dealing with stock price. For such reason, stocks, which tend to be overpriced by the market, are also the most desired. The opposite is true as well.
Success is a matter of results, isn’t it? We often tend to listen to “successful people,” almost like the outcome of their success is mainly due to their ability to make good decisions. If this can be true in some cases, it can also be incredibly wrong in many other cases. On the other hand, we are inclined to accuse those, which sound decisions didn’t turn out to be also the right ones because of the outcome. The speculator often associates a winning strategy based on its results. The problem lies in the fact that the strategy may have worked out of pure lack. Therefore, once the speculator gets convinced of how sounding the strategy is that is when disasters happen.
“This is just an idea! It isn’t real!” How do you feel about this statement? Although your System 2 may rationally agree, your System 1 seems not to grasp this concept. Indeed, we treat ideas like belongings. We own them, we breathe them, and we would perish or murder for them. Wouldn’t we?
How otherwise can we explain wars fought for religion, power and so on? Wasn’t Descartes who once said, “Cogito Ergo Sum” (I think therefore I am)? We feel alive when we theorize and make sense of the world around us. This isn’t negative in itself. What is negative is the fact that we get devoted to those theories. Many times the investors, which fall in love with their ideas, are the ones who wind up losing money.
A different example of that is investor George Soros. Soros can change opinion very quickly. In other words, if changing view can be seen poorly in politics or any other field, this does not apply to investments. The screwed investor has to be ready to change “idea” very quickly.
“Losses loom larger than gains. The “loss aversion ratio” has been estimated in several experiments and is usually in the range of 1.5 to 2.5,” says psychologist Daniel Kahneman. The speculator often falls into the trap of opening positions, to recoup the losses or to wait too long before liquidating a losing position, because of the deceiving thought of waiting for the stock to rise again.
Formulated by Nicholas Nassim Taleb in “Antifragile,” this is a fascinating concept. It consists on the inability of individuals to transfer the knowledge they have in one field to another area. For instance, investors, often make decisions about market moves based on mere superstition. Although, they are “experts” and as such should be able to transfer their financial knowledge to the financial markets, often they are not able to do so.
Learn emotional intelligence from the most successful modern investor
Warren Buffet is one of the few men in the Universe who does not need any introduction. Currently, among the wealthiest persons in the globe, Warren Buffet is one of the most sought businessmen alive.
Many love to define him as the “Oracle of Omaha” due to his mythological Midas touch (although he prefers to invest in stocks rather than gold). In one of many speeches, he affirmed to have won the “Ovarian Lottery” because he was born at the right time and place. Besides his modesty Buffet is a wise man before then a wise investor.
For such reasons we deemed compulsory to account here some of the advises that he publicly gave about life and investments. Also, Warren Buffet’s official biography, “The Snowball” by Alice Schroeder is a detailed account of all the principles that served as a guide throughout his life. However the chances to become as wealthy as Warren Buffet are extremely low (maybe you have better chances of winning the lottery);
On the other hand, Buffet’s advice is meant to be a starting point to build a successful career in business. Therefore take these six guidelines as a catalyst to your success:
The future is not the past
For how petty this point may seem, it is actually very important in Warren Buffet’s world. One of the hardest things to comprehend when dealing with stocks is that we cannot derive from the past future’s stock results.
For such reason Buffet never wasted his time trying to predict financial markets, or how they will react to the next Federal Reserve move. This concept may even be harder to get for those who received formal training in finance. Too often business schools teach how to derive the “future value” of a stock based on the projections of its recent past performance (3-5 years).
The consequence is that the model itself is stunning (excel-psychos make the tool become the end rather than the mean) although worthless.
Beware of the Noise
Newspapers, TV Shows, second by second charts are all engineered to produce a great deal of noise. That sensational clamor is what the wise investor knows how to avoid. The reason to avoid noise is not only psychological but also physiological.
Indeed, not only noise makes us more vulnerable to rumors, but it also makes us more apprehensive and stressed. Our brain is not wired for losses; Cognitive psychologists showed that we perceive losses extremely more than gains.
Consequently, it is wise to reduce the frequency to which we are updated about our portfolio’s performance.
Circle of Competence
This idea is simple but very powerful. Warren Buffet built his life around this concept. To become a successful one must learn how to avoid screw-ups. Many of those come from our tendency to fall into the “mimicry trap.”
In other words, we feel we have to start a venture or invest in the stock just because our neighbor did so. It is essential to draw a line and determine what the things we truly understand are.
For example, as reported in “The Snowball” by Alice Schroeder, Warren Buffet recognized himself as an expert on money, business, and his own life. That is one of the reasons Buffet did not get involved in the dot.com bubble.
He did not necessarily think there weren’t companies worth investing (Buffet is Bill Gates’ good friend); but he did not understand those businesses, and therefore he avoided them because they fell outside his circle of competence.
Don’t go into debt
Buffet learned this principle very early in his life. As reported in “The Snowball” by Alice Schroeder “spend less than you make” and “don’t go into debt” represented Buffet’s Family dictum.
While this principle is easy to understand rationally, it is tough to implement practically. When you contract debt and spend more than you earn, for instance, you will stop accumulating and compounding your wealth.
This was the practical reason for which Buffet implemented this principle throughout his life. If many so-called “gurus” do not practice what they preach, conversely Buffet has always done the contrary. For instance, Buffet still pays himself $100,000 per year, a pretty meager salary compared to Wall Street multi-millionaire bonuses.
The main reason for that is not only symbolical but also practical. If management is paid too “generously,” this would divert resources away from the company which to be successful has to keep its compounding growth.
Not in the Game for money
One may argue that Buffet is a billionaire and as such of course he loves money. But this isn’t the case. What Buffet loves is “how to make money” but not money itself. Not by accident, the Oracle of Omaha donated over $21bn to charities (Buffet’s Donations to Charity), and it is likely that this amount will considerably grow in the next years. Buffet learned this principle from his mentor, and (super)intelligent investor Benjamin Graham.
Work-Smart not hard
Ever since childhood, Warren Buffet disliked manual labor but understood that financial freedom was what he wanted in life. Therefore, he started from early experience to create a system to become financially independent. For instance, the system he used already existed, and it was the financial market.
On the other hand, this principle applies to any other aspect of life. This leads to the difference between scalable and not scalable jobs. Although this concept matured from “The Black Swan” by Taleb, it interestingly applies here as well. There are two categories of jobs. The non-scalable, which strictly depend on some hours you put in.
If you are an accountant you will earn per hour, therefore the more you work, the more you make money. And the scalable ones, where there is not the correlation between hard-work and earnings. If you are a writer or an investor the success of the book or investment does not necessarily depend on some hours invested in it. In the non-scalable spectrum, to become rich, you have to work extremely hard.
Also, the level of income is strictly tied to the amount of work. This implies that you will never be free from your job. In other words, your income is your job, but your job is yourself. Therefore you are your income!
As soon as you stop working your income stops as well. On the scalable spectrum, instead, you are not your income. In other words, you depersonalized your job, by creating a system that works for you.
When you stop working, no longer your income will halt. This principle seems to have been instilled in Buffet’s mind at a very early age.