Tags: High | IQ | Investors

How High I.Q. Investors Outperform Us All

Tuesday, 28 Feb 2012 08:08 AM

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Do smart people make better investors? Probably, but not because they are better stock pickers, according to a recent study.

A review of Finnish investors took advantage of two pieces of data: I.Q. exams obtained from young men, who are universally conscripted into military service in that country, and government reporting of investing income, a requirement due to a national wealth tax.

The study was published in the December issue of The Journal of Finance.

Editor's Note: Use This Single Loophole to Pay Zero Taxes in 2012

The result, says Yale professor Robert J. Shiller, is eye-opening. Even adjusted for income and education, higher I.Q. investors did two important things: They diversified their portfolios and invested more heavily in stocks.

“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,” Shiller writes in The New York Times. “The results are that people with high I.Q.’s build portfolios with better risk-return profiles than their lower-scoring peers.”

Shiller issued a few caveats regarding conclusions one might reach about intelligence and investing. After all, he says, the study doesn’t show that smart people made better individual investments, just that they more closely followed simple investing rules — diversify and lean toward stocks.

If you need an even clearer green light to buy stocks, you probably won’t find a brighter one than Warren Buffett. Despite the great run for stocks so far in 2012, the billionaire investor says it’s still time to buy.

"Equities are still cheap relative to any other asset class," Buffett told CNBC in an interview.

The S&P 500 is up more than 8 percent since Jan. 1, while the Dow Industrials are positive nearly 6 percent.

Editor's Note: Use This Single Loophole to Pay Zero Taxes in 2012

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