What High-I.Q. Investors Do Differently
You don’t have to be a genius to pick good investments. But does having a high I.Q. score help?
The answer, according to a paper published in the December issue of The Journal of Finance, is a qualified yes.
The study is certainly provocative. Even after taking into account factors like income and education, the authors concluded that people with relatively high I.Q.’s typically diversify their investment portfolios more than those with lower scores and invest more heavily in the stock market. They also tend to favor small-capitalization stocks, which have historically beaten the broader market, as well as companies with high book values relative to their share prices.
The results are that people with high I.Q.’s build portfolios with better risk-return profiles than their lower-scoring peers.
Certainly, caution is needed here. I.Q. tests are controversial as to what they measure, and factors like income, quality of education, and family background may not be completely controlled for. But the study’s results are worth pondering for their possible implications.