EQ wins out over IQ

I saw variations on this meme linked all over the place today: people ignore facts when making decisions.

The study focused on politics, but something tells me a similar dynamic is in play in the stock market, except that there are too many facts. People hold on to stocks too long, sell them too quickly and generally beat themselves up for falling in love with a stock (or deserting it against fundamental evidence). Pick your poison. According to economic theory, the stock market should be one of the most rational markets possible. So how come it’s so volatile, and does something similar, if less obvious, go on in other markets?

The answer has to be “yes.” The Sandler Sales method is based on the premise that people buy emotionally but justify their purchases with “facts.” While it’s important that you have a good product to sell, a good salesperson knows how to use emotion to close the deal (and also prevent buyer’s remorse). At it’s most basic level, this is why you can go a long way in sales just by getting people to like you.

Michael Milken is a great example. Though he is thought of as a “quant jock” who figured out how to make low-risk but above-average returns on junk bonds, my guess is that a great deal of his success is driven by his emotional intelligence, not IQ. A few years ago Jack Welch had to testify in a trial involving Michael Milken. (Not the trial that sent him to prison. This was related to some advice he gave to Ted Turner about selling out to Time Warner and whether that advice was considered securities industry work, from which he had been barred for life. There was a great article about it in the New Yorker, but apparently it’s not available online.)

Welch talked at length about how close his relationship was to Michael Milken. He said that when Milken called to talk business, the first 15–20 minutes would be Milken asking him questions about his wife and children in a way that came across as really caring, not phony-baloney salesmanship. He also said that this intimacy had a powerful influence on his decisions to do business with Milken. Even in the world of Six Sigma, emotion rules.

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