QOTD: How Smart People Are Sold Dumb Stuff

Investors thought he spoke their language. He’d say, “All I care about is our shareholders,” and he talked in terms of cash returns and accountability. Many investors don’t like traditional pharmaceutical companies due to the inherent unpredictability of drug development. By slashing those costs, Pearson created not only more short-term profits but also a company where everything seemingly could be quantified on a spreadsheet. Big investors dealt directly with him, and in private meetings he kept them apprised of the details of the business, making them feel like he had their backs. The business model was pitched as “ ‘The rest of the industry is stupid and we are smarter than everyone.’ That’s very appealing to people who think they’re smart,” says Anthony Scilipoti, a founding partner at Canada’s Veritas Investment Research, the only firm in 2014 to put a “sell” rating on Valeant.

You wouldn’t believe how much stuff is sold to people on this basis. Flattering someone’s intellect and telling them you’re in on the same secret that they’ve figured out is a very powerful approach. It’s why smart people end up with elaborate, exotic investment products that either do not work well or are deliberately rapacious.

Source:

THE VALEANT MELTDOWN AND WALL STREET’S MAJOR DRUG PROBLEM (Vanity Fair)