In a moment that reshaped his thinking, a young Larry Ellison realized that intelligence can be a seductive – but misleading – indicator of performance. In Softwar, Ellison shares:
I like very smart people, and Walker’s very smart. In those days, whenever I was defending somebody, my defense would be to point out how smart they were. Jeff was not impressed by this argument. He said, ‘Yeah, Larry, he’s very smart, but can he do his f***ing job?’ I just stared at Jeff and said nothing, but I was thinking, ‘Oh my God, he’s right. Brilliance is not enough.’
That insight shows up well beyond the software business.
In Berkshire Hathaway’s 2024 shareholder letter, Warren Buffett celebrated the life and success of Pete Liegl, the founder of Forest River, an RV company Berkshire had purchased:
One further point in our CEO selections: I never look at where a candidate has gone to school. Never!
Of course, there are great managers who attended the most famous schools. But there are plenty such as Pete (Liegl) who may have benefitted by attending a less prestigious institution or even by not bothering to finish school. Look at my friend, Bill Gates, who decided that it was far more important to get underway in an exploding industry that would change the world than it was to stick around for a parchment that he could hang on the wall…
Not long ago, I met – by phone – Jessica Toonkel, whose step-grandfather, Ben Rosner, long ago ran a business for Charlie and me. Ben was a retailing genius and, in preparing for this report, I checked with Jessica to confirm Ben’s schooling, which I remembered as limited. Jessica’s reply: “Ben never went past 6th grade.”
I was lucky enough to get an education at three fine universities. And I avidly believe in lifelong learning. I’ve observed, however, that a very large portion of business talent is innate with nature swamping nurture.
Pete Liegl was a natural.
Buffett’s long-time business partner, Charlie Munger, graduated from Harvard Law School. By all accounts, he was a fine lawyer. But Munger’s defining success – the work that made him a billionaire and one of the most respected investors in history – came after he stepped away from law.
Buffett’s 2024 shareholder letter reinforces Ellison’s realization: credentials – though wonderful – are an incomplete proxy for performance.
Active fund management is a coveted business. Many professionals in the field graduated from Ivy League universities with distinction, trained at storied Wall Street firms, and operate from corner offices in Manhattan. In conversation, it’s clear that many of these managers are brilliant; they’re remarkably sharp and admirably articulate.
But how does that brilliance translate to performance?
Every year Standard & Poor’s (S&P) publishes an updated “index versus active” report*, wherein they compare the performance of actively managed funds against the performance of the benchmarks that those funds aim to beat.
Over the 10 years ended December 31, 2025:
- 93.4% of large-cap core managers underperformed the S&P 500 (a large-cap core benchmark)
- 80.5% of small-cap core managers underperformed the S&P 600 (a small-cap core benchmark)
The results are similarly dismal across other segments of the US and non-US landscape. Despite all the intelligence and pedigree, the vast majority fail to outperform.
This doesn’t mean active management is “bad” or that active managers aren’t smart; active management is a beautiful pursuit that can deliver life-changing value if done well, and the field is densely populated with geniuses.
It means something simpler and more uncomfortable: Brilliance is not enough.
Intelligence, education, and credentials are wonderful. All else is equal, more is better. When all else is not equal – and it rarely is – investors will be well served by due diligence efforts that ensure dazzling resumes are accompanied by relevant skills and real results.
