In Finland, all young men are required to spend some time in the military. Finland also has a wealth tax, requiring citizens to report their investments to the government. As a result, researchers from the University of California, Los Angeles, Aalto University, and the University of Chicago have discovered data worth studying. Because all military personal are required to submit to intelligence evaluations, researchers looked at I.Q. scores to determine whether there was any correlation between these numbers and investing success.
The study uncovered interesting investment patterns.
- People with a higher I.Q. were more likely to diversify their investments more.
- With a higher I.Q., investors were more likely to invest in small-cap stocks.
- Higher I.Q. correlates with heavier involvement in the stock market.
From the New York Times article discussing the study:
The authors didn’t claim that people with high scores had some kind of monopoly on stock-picking genius. What they did contend was that these people tended to follow basic rules of successful investing.
In some ways, it’s a puzzle why I.Q. scores would matter in this regard. After all, the view that people should diversify their investments, to avoid putting all their eggs in one basket, is widely accepted. It’s not hard to diversify a portfolio or to have someone do it for you.
According to the paper, the study was controlled for external factors like wealth, income, age, and occupation. This is an important distinction to note because there is some controversy surrounding I.Q. tests. The typical I.Q. test may be biased in favor of people from families with a higher income or from a higher socio-economic status background.
I don’t know my I.Q. score, and I expect most readers don’t know theirs, either. It would be difficult to have an opinion on the results of this study without I.Q. tests being widespread. Sometimes, though, success in the stock market seems to rely on other factors: good research, good timing, and good planning.
While the habits above may be correlated to high I.Q. scores, what this study didn’t seem to measure is outright financial success in the stock market. We can assume that diversified investments, a focus on small-cap stocks, and more money invested lead to better results. That’s likely true over the long-term, but short-term success might depend on other factors. Those other factors might not be correlated to I.Q., or if they are, were not considered in this research.
Do you believe there is a link between intelligence (whether measured by I.Q. score or not) and stock market success?
Updated June 20, 2014 and originally published February 29, 2012.