Does a Higher I.Q. Make Better Investors

Robert Shiller has an article in the Sunday New York Times called: What High I.Q. Investors Do Differently.Does having a high I.Q. score help you pick good investments? According to a paper published in the December issue of The Journal of Finance, is a qualified yes.

  • Even after taking into account factors like income and education, the authors concluded that people with relatively high I.Q.’s typically diversify their investment portfolios more than those with lower scores and invest more heavily in the stock market.
  • They also tend to favor small-capitalization stocks, which have historically beaten the broader market, as well as companies with high book values relative to their share prices. The results are that people with high I.Q.’s build portfolios with better risk-reward portfolios than their lower-scoring peers.

From my personal experience in the stock market; I would take some of their findings with a grain of salt. I’ve seen brilliant people do incredibly stupid things. When money is involved so are emotions. Emotions that can certainly cloud rational judgement. The paper has an interesting point:

Only about half of all American adults have money in the stock market, directly or indirectly. So maybe some thing else is going on. The real problem may not be that many people lack investing savvy or smarts. Perhaps what they lack is trust, or confidence in whom to trust!

What do you think? Does a higher I.Q. necessarily equate to a better portfolio with better returns? 


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