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Warren Buffett: Success in investing doesn't correlate with IQ

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Re: Warren Buffett: Success in investing doesn't correlate with IQ

#21

Post by jcampbell1 »

hkmurakami wrote: post #16
jcampbell1 wrote: post #10

I once talked to someone that worked for one of the brokerage houses, and they ran a report to measure the investment performance of the aggregate portfolio of people with M.D. in their title (doctors). It turns out that they were systematically terrible investors with low returns and high volatility for every period and any measure. I think the problem physicians face is that they spend everyday all day as the smart…

Well they also probably have less time than even the average person to read, learn, and do research.

I think the real problem is that they are never explained the EMH during their lunch hour. Instead they hear about other doctor's winning investments, and it creates a stupidity cycle. I am pretty sure if I asked about investing at any tech company during lunch, someone would explain EMH to me. I could be wrong.

I personally don't believe markets are always efficient, but I always think from the perspective of why I think the market is right or wrong.

Re: Warren Buffett: Success in investing doesn't correlate with IQ

#22

Post by btilly »

thewarrior wrote: post #14
tokenadult wrote: post #9

Earlier quoted context omitted.

I seriously doubt if an IQ of 120 is sufficient to become an eminent mathematician. That is an empirical question, and the historical answer is that that IQ level suffices.

Could you please lead me to the sources .Its just to console and motivate myself . Because I find this very hard to believe .

According to page 8 of http://mathdl.maa.org/images/upload_library/22/Polya/0746834... the noted mathematician http://en.wikipedia.org/wiki/Julia_Robinson had a measured IQ of 98.

He was in a different field, but Richard Feynman's mathematical genius is in dispute by nobody. However his measured IQ is widely quoted at 125.

IQ is somewhat correlated with intelligence, which is somewhat correlated with mathematical ability. You cannot be a mathematician without the mathematical ability. But your ability may or may not get fully reflected on an IQ test.

Re: Warren Buffett: Success in investing doesn't correlate with IQ

#23

Post by incompatible »

I'd go further and say the ability to switch off the logical parts of your brain is essential when dealing with the financial markets. Trying to understand why the markets are doing what they are doing is not only a waste of time when trading, but can lead you badly astray. That's when you think you know what the market is going to do next, based on your research and rationality. In practice, it can and will ignore your rational conclusions and do whatever it likes.

Re: Warren Buffett: Success in investing doesn't correlate with IQ

#24

Post by chubot »

jcampbell1 wrote: post #10

I once talked to someone that worked for one of the brokerage houses, and they ran a report to measure the investment performance of the aggregate portfolio of people with M.D. in their title (doctors). It turns out that they were systematically terrible investors with low returns and high volatility for every period and any measure. I think the problem physicians face is that they spend everyday all day as the smart…

Sounds plausible to me... like Buffet says, it's about temperament.

Marginally related: nice old article about Taleb vs Neiderhoffer: http://www.gladwell.com/2002/2002_04_29_a_blowingup.htm

Both brilliant guys, IQs off the charts, but the difference is clearly temperament. Neiderhoffer was the genius and squash champ at Harvard. The typical M.D. probably has life experience closer to his.

In contrast, Taleb writes a lot about his family suffering through the Lebanese civil war. I know who I would trust with my money :)

Re: Warren Buffett: Success in investing doesn't correlate with IQ

#25

Post by lmkg »

mc-lovin wrote: post #11
adventured wrote: post #7

Earlier quoted context omitted.

I assume you're joking, since the stock market is anything but efficient. If it were, as Buffett has noted frequently, his success would have been completely impossible. Indeed, the most money is made from the highest inefficiencies. And there's no inherent or guaranteed mechanism that drives under or over valued stocks back into any theoretical fair value line. Stocks are governed by human judgment ultimately - whic…

I wasn't joking. > If it were, as Buffett has noted frequently, his success would have been completely impossible. Indeed, the most money is made from the highest inefficiencies. Survivorship bias? I don't know, but in any case market efficiency is a very general claim, it doesn't rule out some "special" people with innate talent to predict future prices. >And there's no inherent or guaranteed mechanism that drives u…

> but in any case market efficiency is a very general claim, it doesn't rule out some "special" people with innate talent to predict future prices.

The "efficient market hypothesis" is one of those hypotheses that has Strong and Weak versions, with the weakest versions being obviously true, and the strongest versions being equally obviously false, and practically pseudo-religious. The strongest version of the Strong Efficient Market Hypothesis does indeed rule out the existence of such exceptional people (or at least their ability to profit), because it says that the market will always instantaneously reflect the knowledge of all participants. Such a prognosticator would find their ability to beat the market asymptotically approach zero, as his attempts to take advantage of opportunities cause those opportunities to evaporate in his hands at the instant of investing.

Re: Warren Buffett: Success in investing doesn't correlate with IQ

#26

Post by gfodor »

bcoates wrote: post #13
gfodor wrote: post #5

Earlier quoted context omitted.

Buffett's entire investment philosophy is rooted in the idea that the market is not always efficient.

I don't think that's true. Buffett's investment philosophy involves active intervention in the companies he owns, not just blind stock picking.

He acts on what he perceives as mispricings in the market. That these mispricings may be caused or magnified by his own actions in the companies he is involved with isn't really the point.

Re: Warren Buffett: Success in investing doesn't correlate with IQ

#27

Post by ghshephard »

mc-lovin wrote: post #4
sachingulaya wrote: post #3

Actual text: Success in investing doesn't correlate with IQ once you're above the level of 125. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing. Warren Buffett

It should be the other way around: below a certain IQ all you need is the efficient market hypothesis and you will be an adequate investor.

Well - there is also the Age/Risk equation in which you need to rebalance your portfolio out of equities, and more into conservative (diversified) instruments (money market funds, AAA bonds, Cash) as you get older, and/or have less tolerance for risk.

But I get your point, the single sentence

"Put as much of your income into VFINX as you can afford."

gets you 95% of the way there - doubtful that you will really increase your performance that much by studying books like these - http://www.amazon.com/Top-Investment-Books/lm/R3OSLG8NX7CO8W.

Re: Warren Buffett: Success in investing doesn't correlate with IQ

#28

Post by BadCookie »

20100thibault wrote: post #17

I find it quite unbelievable that this is an actual quote from buffet... With any basic knowledge of statistics you know that 125 isn't ordinary intelligence ...

I suppose he meant that an IQ of 125 corresponds to the sort of intelligence that is not especially hard to find (and is thus "ordinary"), although it is still above average and higher than the score of most people.

Re: Warren Buffett: Success in investing doesn't correlate with IQ

#29

Post by rsofaer »

20100thibault wrote: post #17

I find it quite unbelievable that this is an actual quote from buffet... With any basic knowledge of statistics you know that 125 isn't ordinary intelligence ...

It's about 5% of the population, so not normal in the sense that most people have an iq of 125, but normal in the sense that meeting someone with an iq of 125 is not terribly uncommon.

Re: Warren Buffett: Success in investing doesn't correlate with IQ

#30

Post by pshin45 »

> Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.

Temperament really is everything, and investing and/or gambling brings out the worst in people.

I used to play a lot of poker (which I consider a pretty good proxy for investing) in college and it was amazing to me how some of my smartest friends could be so horrendously bad at it.

For example, one of my Math major friends just couldn't control himself. He'd start with e.g. $1,000 playing online, get up to $10,000 in a few hours, and then blow it all soon after. He repeated this cycle too many times for me to count.

One of my pre-med friends was so smart and so confident both academically and socially, but he'd be the most timid and passive person at the poker table, never being able to raise or bluff anyone and usually losing all his money to more aggressive players.

I'd also venture (no pun intended) to say that most VCs are terrible investors as well - Following the herd, short-sighted, and little to no appetite for big ambitious long-term investments of time and money.

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