'Rocket Science' Takes More Than Just Brains

In which jobs do we find the most intelligent folks in the world?

Ask a random group of people this question, and you're likely to hear the same professions repeated.

Mechanical, chemical, and nuclear engineers... physicists... or rocket scientists.

These folks allow us to plumb the deepest depths of the ocean and travel into space. They figured out how to turn small amounts of matter into energy that can power entire cities.

But within their industries, we find some of the most horrible mistakes and disasters. And as I (Joel Litman) share today, they teach us an important lesson...

Take the 2010 Deepwater Horizon calamity, also known as the BP Oil Spill. The oil rig and drilling site failed to properly cap and contain a leaking oil well at the bottom of the ocean. The rig ended up exploding, and the resulting oil spill wreaked havoc on the environment.

In Japan, the Fukushima nuclear reactor was located near the ocean. In 2011, an earthquake, tsunami, and a number of backup-system failures led to three meltdowns, explosions, and radioactive contamination. It's regarded as the second-worst nuclear accident, after the 1986 Chernobyl disaster.

Finally, we have to acknowledge the two heartbreaking explosions of the space shuttles Challenger and Columbia. The Challenger incident in 1986 included a civilian – a teacher and a mom – who the entire country identified with. Columbia's explosion in 2003 contributed to the demise of the space shuttle program itself.

So, with such incredibly intelligent people working in these industries, how do such disasters happen?

Researchers studied the decisions leading up to the Deepwater Horizon oil spill. Their findings included some specific statements...

  • "The common thread... is often technological arrogance and hubris."
  • "... Ignored warning signs through overconfidence."

A study of the problems at the Fukushima facility turned up safety reports that had been ignored. These cited flaws in the plant's ability to withstand earthquakes and tsunamis – both well-known occurrences in Japan.

In the reported findings for the Fukushima disaster, we see a theme similar to that of the Deepwater analysis...

  • "A cascade of stupid errors that led to disaster."
  • "... even concealed problems."

The space shuttle disasters also received incredible scrutiny. The analysis of NASA's decision-making and the decisions of related vendors and partners in the space program identified a key source of those errors. In a researcher's own words...

People are so sure of themselves, when they see something go wrong that they can't fix, they accept it.

The NASA decision-making study said that the researchers found a "normalization of deviance." That's a fancy, rocket-scientist way of saying that problems were swept under the rug.

Hubris is at the center of some of the worst disasters in history.

Investment research is another business full of people who are incredibly bright... But sometimes, they also have exceptionally large egos that make them blind to data they don't want to see.

When you spend your whole day defending a stock you pitched – whether to colleagues, clients, or friends – you can start to attach the performance of the idea to your own value.

You can start to ignore – or even fight – any signals that disagree with your original thesis for your idea. After all, the contrarian data might mean you were wrong! And if you're on Wall Street, you're a "master of the universe"... so how could you possibly be wrong?

This is crucial to know if you're working with any kind of money manager. Of course, you should strive to hire very smart people. But you also want to make sure that those folks have a strong grounding in humility. They need to be able to learn. They need to be able to realize and accept their mistakes.

And if you're investing on your own, you need to strive to do the same.

I'll finish with some words of guidance from billionaire investor and hedge-fund manager Paul Tudor Jones...

Always question yourself and your ability. Don't ever feel that you are very good. The second you do, you are dead.


Joel Litman

Editor's note: Joel teamed up with Chaikin Analytics founder Marc Chaikin to share their investment "playbook" for how to protect and grow your wealth today. Click here to learn how to navigate today's rocky market.