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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

#41

Post by confluence »

pvdm wrote: post #38
confluence wrote: post #35

Emotions + inactivity > intelligence with investing. It's fairly easy to find things that are undervalued and then sit on them. The problem comes when you enter the trade and real, serious amounts of money are on the line. You know like the "thousands of hours you put into your life savings" kind of money. I distinctly remember the first time I put on a significant trade (significant fraction of my total net worth).…

You know we have been in a bull market. can you have the same aplomb in both up and down markets ?

My worst draw down was 60% over 2 weeks. I think I can take a global financial crisis - because I expect my losses to be 100%. I don't use leverage - so it can't get much worse than that.

Most people never trade stocks that move that much, that contain within them that level of risk, or deal with losses as often as I have had to do.

The problem with down markets is they happen so rarely that most people who invest in good, solid companies don't know how to react them when they do enter one - just like I didn't at the start of my trading career.

When every other week has one losing significant fractions of their total net worth relatively quickly, then the global financial crisis just becomes another day in one's year.

I see what people call black swans on a monthly basis. They no longer surprise me.

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

#42

Post by jwheeler79 »

clarkm wrote: post #32

I agree with what he's getting at, but I'm not sure why he phrased it this way. It's not like he did a study and this was the result (that I know of). He has no way of knowing if IQs of 125+ actually correlate with success in investing or not -- he's just guessing. It's an educated guess, sure. And it might be entirely correct. But I'm sure Buffett has lots of useful advice that people will take at face value, so the…

No need to dress up wisdom with unsubstantiated scientific language? Where do you get that? He sounds plainly spoken to me.

He's not saying high I.Q. doesn't have its advantages at all. He says overly high I.Q. doesn't give you an advantage when it comes to investing and there are plenty of examples.

Probably the biggest one from your M.I.T. alumnus, a partner in Long-Term Capital Management[1], creators of the Black Scholes Formula for options pricing. Their firm lost billions of dollars because said "perfect" hedging formula failed to account for shit going south in Russia one day.

It doesn't take a genius to observe a few really smart guys drawing some conclusions based on Brownian Motion, and the thing works most of the time, until someone tosses a boulder into the particle system and fucks everything up.

Don't forget about the fellow who whined: "I can calculate the movement of the stars, but not the madness of men" when he lost today's equivalent of 2.5M in the South Sea Bubble[2]. That'd be Sir Isaac Newton.

[1] https://en.wikipedia.org/wiki/Long-Term_Capital_Management [2] http://en.wikipedia.org/wiki/South_Sea_Company

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

#44

Post by confluence »

meric wrote: post #39
confluence wrote: post #35

Emotions + inactivity > intelligence with investing. It's fairly easy to find things that are undervalued and then sit on them. The problem comes when you enter the trade and real, serious amounts of money are on the line. You know like the "thousands of hours you put into your life savings" kind of money. I distinctly remember the first time I put on a significant trade (significant fraction of my total net worth).…

10-20% a day? Are you trading options? My portfolio never fluctuated 5% in one day, and it only fluctuated that much due to recent run up of Tesla and solar city... But I agree the more you are in the more numb you are to the market.

I don't have a portfolio is probably the reason why.

I usually concentrate most of my money in the one investment that I believe would provide me with the highest probability of high returns.

And yes - I do trade options, and no I don't need a lecture on diversification, I know what I'm doing.

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

#45

Post by dinkumthinkum »

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…

I don't know that I would go that far. It may be that they know a lot about medicine but don't know a lot about investing, the same way a car mechanic, line cook, etc may not be good investors. Many physicians are much more serious than just making snap stuff. I think 1) investing is hard and 2) many people are not good at it so it is not surprising that a lot of MDs would be not good.

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

#46

Post by clarkm »

tokenadult wrote: post #9
ekm2 wrote: post #8

Earlier quoted context omitted.

Some fields have a cognitive threshold. I seriously doubt if an IQ of 120 is sufficient to become an eminent mathematician.

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.

Not true - there are tons of studies that show otherwise, so I have no idea how this myth still exists.

An IQ of 120 is the top ~10%. Here's a 25 year longitudinal study [1] of over 1,500 students that were all in the top 1% and it shows significant differences between the lowest and the highest quartile (who were in the top .01%):

> Ability Differences Among People Who Have Commensurate Degrees Matter for Scientific Creativity > ABSTRACT: A sample of 1,586 intellectually talented adolescents (top 1%) were assessed on the math portion of the SAT by age 13 and tracked for more than 25 years. Patents and scientific publications were used as criteria for scientific and technological accomplishment. Participants were categorized according to whether their terminal degree was a bachelor’s, master’s, or doctorate degree, and within these degree groupings, the proportion of participants with at least one patent or scientific publication in adulthood increased as a function of this early SAT assessment. Information about individual differences in cognitive ability (even when measured in early adolescence) can predict differential creative potential in science and technology within populations that have advanced educational degrees.

This is just one example, but the results seem to be pretty consistent.

[1] https://my.vanderbilt.edu/smpy/files/2013/02/ParkPsychScienc...

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

#48

Post by confluence »

apsec112 wrote: post #43

This seems clearly false. What about David Shaw and Jim Simons? We know at least two out of n were huge successes, and n here (hard science professors at top schools who went into finance) is very small.

Ostensibly they use computers to automatically execute their strategies and hence their own human emotions do not factor into their trades.

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

#49

Post by clarkm »

jwheeler79 wrote: post #42
clarkm wrote: post #32

I agree with what he's getting at, but I'm not sure why he phrased it this way. It's not like he did a study and this was the result (that I know of). He has no way of knowing if IQs of 125+ actually correlate with success in investing or not -- he's just guessing. It's an educated guess, sure. And it might be entirely correct. But I'm sure Buffett has lots of useful advice that people will take at face value, so the…

No need to dress up wisdom with unsubstantiated scientific language? Where do you get that? He sounds plainly spoken to me. He's not saying high I.Q. doesn't have its advantages at all. He says overly high I.Q. doesn't give you an advantage when it comes to investing and there are plenty of examples. Probably the biggest one from your M.I.T. alumnus, a partner in Long-Term Capital Management[1], creators of the Black…

I don't disagree -- I think of markets as generally anti-inductive, so over-thinking things is a definite risk. And some quants have the habit of developing models so complex that when conditions change, they can't figure out how to adjust them.

I'm just saying that Buffett's quote sounds like the abstract from some scientific paper. I'm surprised he didn't include a p-value.

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

#50

Post by strongvigilance »

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…

To be fair, this kind of performance would probably be seen over any sample of the brokerage house clients.

Even professional mutual fund managers systematically underperform the market.

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