When it comes to investing, throughout my career I have been particularly interested in the equation of whether an
Increase in IQ = An increase in wealth?
When I have spoken to people within the industry about it, I have found that most of them may initially state a resounding "YES".
When I think about this equation however, I normally place one exclusion on the data set whereby if the wealth was created primarily from entrepreneurial activities, such as your own business, then this person or data would be excluded.
An example of this would be Elon Musk the founder of Tesla. He is clearly a genius from an IQ perspective and what I would classify as a "propeller head". However in terms of the above equation, I would probably not include him in the assessment, as most of the wealth was generated from from his business activities as opposed to his genius investing activities.
As a side note, you may already be aware of research which confirms that as you increase your education levels there is generally an increase in income. These are broad assessments and broad statements, because we all know the world is full of high school drop-outs who have created multi-million and billion dollar businesses. However, if you are wanting to play the the safe option with the odds stacked in your favour, then increasing your education is something to keep in mind.
This data set however does cap out, and the basic level of education that we receive in Australia is often taken for granted from a global scale.
Getting back to the above equation however, I was particularly interested to see if when it comes to investing if you have a higher IQ does this result in better investment decisions?
The data set I believe is inconclusive and the we can only look at incidental examples such as the ones below:
Warren Buffett, a famous investor, was once quoted stating "that if an investor had an IQ of 150 points they they should sell 30 points to someone else, as anything above 120 is unnecessary." Interestingly Warren scored only C for English and Maths in his high school report card.
The founders of Long Term Capital Management, were hedge fund managers and winners of the Noble Peace Prize in Economic Science for their company to only later fail in 1997 and require financial intervention of the US Federal Reserve whereby the company then went into liquidation.
Today this question still goes unanswered in my mind, but I think the short coming in the equation is that it misses one key element of common sense - something that should be applied to every decision making process.
The realities are, when it comes to investing, regardless to whether or not you are a propeller head, you can leverage from the expertise of experienced professionals.
Here at AJ Financial Planning, we have over a decade of experience in Financial Planning and believe we balance our IQ with a common sense approach to investing. So why not chat to us about your ideas and dreams, and together we can work to achieve them?