BEING INTELLIGENT MAY NOT WORK WELL WITH INVESTING:

Mensa is an organisation founded in 1946. You can become a member if your IQ is within top 2% of the population. Higher IQ would be of advantage in many aspects of life. When it comes to investing, higher IQ is often counterproductive.
Eleanor Laise evaluated the performance of Mensa investment club for a 15 year period, from 1986 to 2001. When top notch intelligent people manage money, you would expect extraordinary results. During the above period, S&P 500 index provided an annualised return of 15.3% whereas Mensa investment club was able to generate a paltry return of 2.5%. Mensa underperformed index by a whopping 84%.

What contributed to Mensa’s failure? They did not have a coherent investment strategy. They kept changing their strategy almost every quarter. They repeatedly tried to time the market, chased performance, focused more on the fads and fashions, was over confident, lacked discipline and long term orientation.

That’s why Warren Buffett said, “If you are in the investment business and have an IQ of 150, sell 30 points to someone else. You do have to have an emotional stability and an inner peace about your decisions. It is a game where you are bombarded by minute-by-minute opinions. It’s not a complicated game. It’s simple, but it’s not easy. You have to have an emotional stability.”

I don’t know what my IQ is. It should either be average or below average. But I’m able to reasonably do well at investing (after a decade of painful learning) because I’ve evolved an investment strategy and stick to the same through ups and downs. Long term orientation, patience and discipline are the only edge I possess. We do our best in nurturing and sustaining the same traits in you.

Once you have a proper investment strategy, what is required is emotional intelligence. Ignore noise, ride the ups and downs, stay the course, have long term orientation, stick to the investment discipline with extreme patience. If you are able to do this, you’re most likely to end up rich.

The idea is not to criticise people with higher IQ but to highlight it is emotional stability and not higher IQ which would make you a successful investor.

Happy Investing !!

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