Warren Buffett once proclaimed that “you don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ”. Reassuring words from the Sage of Omaha: the stock market is not a domain exclusively reserved for geniuses.
Even so, there is evidence to suggest that a person’s intelligence quotient (IQ) does directly influence their willingness to buy shares in companies – controlling for alternative influences such as employment status and income. A 2011 paper, written by academics Mark Grinblatt, Matti Keloharju and Juhani Linnainmaa, uses statistical analysis to show that those with higher IQs are more likely to jump into the market. Those with lower IQs are correspondingly less likely to do so.
And that’s little wonder, perhaps, when you consider the other key takeaway from Grinblatt and co.’s study. The data suggests that higher-IQ investors tend to benefit from greater diversification in their portfolios, lower volatility and a better risk/return trade-off.