Does IQ Matter When It Comes to Investing?
When you seek advice about investment, do you want to seek it from people who have certain qualifications or average people? No doubt, you will choose the one with the qualifications because it gives you a sense of certainty that these people are qualified enough to talk about this. You want the best people to help you manage your money because you don’t want to lose it.
It isn’t always the case for investing. A high IQ level is not necessarily required for investing and making money in the stock market. As Warren Buffett said, “Investing is not a game where the guy with the 160 IQ beats the guy with a 130 IQ”. Nevertheless, the more educated they are, the more convincing they sound. It will definitely influence the decisions of some people.
Take a banker as an example. Bankers need to achieve their sales target every month. Due to the pressure to achieve it, some will just sell the products without even understanding what they sell. They will promise you a great return yearly if you invest in such and such things and some people will believe them because they work in a great bank and who want to say no to a “great return” yearly?
Other than that, we can look at Elon Musk. People listen to him because he’s intelligent. Dogecoin is a meme coin but people bought it because they believe everything that Elon Musk say. But, is it right to just simply follow what people said without researching it yourself?
If having a high IQ is a must to be a great investor, Newton would have been a great investor. We all know that Newton lost so much money investing his life’s savings into the South Sea Company. In the book The Intelligent Investor, Graham write —
Back in the spring of 1720, Sir Isaac Newton owned shares in the South Sea Company, the hottest stock in England. Sensing that the market was getting out of hand, the great physicist muttered that he ‘could calculate the motions of the heavenly bodies, but not the madness of the people.’
It clearly shows that you absolutely do not need such a high IQ or to be so clever to be a better investor. Warren and Charlie have always said, “what makes a value investor successful isn’t IQ nor his experience; it’s his temperament.”
How to be a better investor?
- To be relatively independent
You should be able to have your own opinion and principle. You can listen to others but don’t let that influence your decision. We can look at Charlie Munger as an example. There are so many noises in the stock market about Alibaba is a risky stock to invest. When most of people start selling it, he added more Alibaba stocks into his portfolio.
“The stock investor is neither right or wrong because others agreed or disagreed with him; he is right because his facts and analysis are right.” ― Benjamin Graham, The Intelligent Investor
2. Extremely patient and extremely decisive
It takes years to find a great stocks to invest in. If you haven’t found any investments that meet your opportunity cost, cash is a good option. At the very least, it’s preferable to speculating with your money.
When there are no opportunities, you might go for years without taking any action. But as soon as an opportunity arrives, you must be able to become extremely decisive and act without hesitation. For instance, Charlie Munger read the Barron’s — a weekly magazine about the stock market published by the Wall Street Journal — for 40–50 years to gain investment ideas. During that period, he only manage to find one great investment and he still read the magazine.
“It’s waiting that helps you as an investor, and a lot of people just can’t stand to wait” Charlie Munger
3. Intensely interested in business
It is better to have the mindset of a business owner when you invest in stocks. Stock is not only a piece of paper, it represent fractional ownership in the company that you invest in. When you think like a business owner, you will be more interested to know more about the business you invest in.Understanding the business well can help us make an accurate forecasts over a long period of time with a high degree of confidence.
“Shares are not mere pieces of paper. They represent part ownership of a business. So, when contemplating an investment, think like a prospective owner” Warren Buffett
The Bottom Line
IQ is not important when it comes to investing. Through hard work, discipline and the right temperament — over a long period of time, everyone can be a better investor.