Saturday, March 24, 2012

Does it Take a High IQ To Become a Successful Investor?

Yale Finance professor Robert J Shiller cites two independent studies that seem to say, "yes".

The first, a Journal of Finance article which uses data from Finland, shows that high-IQ investors typically invest more heavily in the stock market, own better-diversified portfolios, and favor small-capitalization stocks, resulting in portfolios with better risk-return profiles than those owned by lower-IQ investors. While the authors didn’t claim that people with high scores had some kind of monopoly on stock-picking genius, they did contend that these people tended to follow basic rules of successful investing.

The second is another Journal of Finance paper that shows how a higher level of trust leads to greater investments in the stock market. The authors argued that knowing whom to trust, and relying on those who are trustworthy, is itself an aspect of intelligence.

What do think of these results? It would be interesting to know how closely these findings may be replicated in the Philippines, if at all. My guess is that IQ would not play as strong a role as other factors in determining investment success in the Philippines. For example, as in a lot of things, "who you know" (i.e., how much access you have to "inside information") would trump out "what you know" (i.e., your IQ) any day of the week.

via The New York Times

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